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Could Aadhaar Be The “Aadhaar” for A Formal Indian Economy

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The word “Aadhaar” means “basis” in English. Aadhaar is a twelve-digit identity number for Indian residents, which was implemented by the government to provide a unique digital national identity to the citizens of the country. Aadhaar creates a digital identity to supplement the physical identity. It has been globally recognized as the world’s largest digital identity programme.

The Aadhaar scheme was initiated by the UPA regime to curb the rising number of fake accounts of fictional beneficiaries in the government’s welfare schemes for the underprivileged Indians.

The data for Aadhaar is collected by Unique Identification Authority of India (UIDAI), a statutory authority established by the government of India in January 2009. The Supreme Court of India ruled that Aadhaar is voluntary and not mandatory. On 24th August 2017, the Indian Supreme Court further reaffirmed the right to privacy as a fundamental right.

Nandan Nilekani, the co-founder of Infosys, was appointed by the then UPA government to manage this massive IT project. Aadhaar was launched in 2012 by the then Prime Minister Manmohan Singh. The present-day government in India provided legislative support to the Aadhaar project in 2016.

Aadhaar’s success in India can be gauged by the fact that out of the 130 crore population in India, 119 crore citizens currently possess an Aadhaar card. The states of Delhi, Haryana, and Telangana have seen high Aadhaar adoption, while northeastern states are lagging behind.


Source: UIDAI

Why is the government pushing Aadhaar

Aadhaar aims at digitally empowering Indians, especially the rural population through the Aadhaar-enabled payment system. People in remote parts of the country can easily access their wages, pensions, provident funds etc. with an Aadhaar card. A massive amount of Indian taxpayers’ money has already been saved by detecting fake gas connections and ration cards.

Aadhaar was introduced to better manage bureaucratic services and provide improved governance. It provides for distribution of subsidies to the rightful beneficiaries plugging the leakages which are endemic to India’s social welfare schemes. In future, the Aadhaar card will be made mandatory to avail benefits of various government schemes and services. In addition, an Aadhaar letter provided by UIDAI will act as a valid proof to open a bank account. If you possess an Aadhaar card, you can get a passport in just 10 days. A few states are also making it compulsory to own an Aadhaar card before buying a new car (Andhra Pradesh) or a new SIM.

Another advantage of Aadhaar is the creation of formal documentation of an individual’s education and employment records, which would contribute to building a stronger Indian economy in the future.

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Aadhaar Challenges

Aadhaar has faced several challenges as it solicits the collection of private information like fingerprints and iris scans of individuals. A number of citizens are skeptical about linking Aadhaar numbers with their respective bank accounts, mobile phone numbers, investment accounts etc. as it creates privacy issues. This information may be misused by the government.

Aadhaar-linked data is available with the state governments and numerous people involved in the ecosystem. This creates a valid concern about the government’s ability to protect their personal details. Despite the government assurances about the foolproof nature of the system, there have been numerous cases of hacking of databases both in the public and private domains that makes one doubtful whether the government can protect the Aadhar database.

A recent verdict by the Supreme Court has imposed restrictions on the usage of Aadhaar by private companies, citing privacy concerns. Aadhaar will continue to be used for welfare schemes for the underprivileged and is mandated to be linked with one’s PAN (permanent account number). Further, the court has also ruled the need of a proper redressal mechanism for anyone who suffers from identity theft, due to lapses on the part of UIDAI.

In the wake of the above decision private companies, especially banks and telecom companies will not be able to freely use Aadhaar numbers of their customers for e-KYC.

If a citizen has already linked his/ her Aadhaar with various services, he/ she can connect with the service providers to delink their Aadhaar.

What the common man has to say

There are opposing views regarding Aadhaar from different walks of life.

Citizens of modern India like those working in MNCs think Aadhaar to be annoying because they receive recurring reminders from banks, telecom companies, and mutual fund houses to link their accounts with their Aadhaar number. “I am concerned about the safety of my identity and accounts to be given to the world so freely” – says a friend of mine Rahul Agarwal, who is working with PwC in Gurgaon. If the linkage is not done, then there is a threat that the bank account, mobile network etc. would stop working.

A Modi believer said “I did it because of the government push and I have full trust in the Modi government. I hope it will help to strengthen the Indian economy in the future.”

People like the house help have been really thankful to the government for Aadhaar. Sheila a cook working in Gurgaon says that Aadhaar has eased her life as it is now convenient to open a bank account and send money home. She was also able to get her entry passes, to different residential societies made easily, because she possessed an Aadhaar card. She says it is was very easy to get subsidy funds for a bicycle (for her eldest daughter who goes to a government school) from the relevant authorities.

For people like Sheila who have left the comforts of their own homes and are working in cities to provide a decent living for their families back home, Aadhaar has come as a boon.

Aadhaar as compared with other social identity programs

Despite people loosely comparing Aadhaar with Social Security Number (SSN) of the US, there are huge differences between the two. The most important one being that SSN details of an individual are shared with the federal agencies and entities that store the data at an organizational level. The law prohibits its use for any commercial or promotional purposes, unlike Aadhaar which was being freely used by private and public companies in India, until the most recent verdict was passed by the apex court on September 26th, 2018. Unlike Aadhaar, which stores personal information like the biometrics, SSN does not solicit any such information and even restricts its usage. Moreover, the Social Security Number is not an identity number.

The chief economist of the World Bank has opined that India’s Aadhaar is one of the most sophisticated systems and proposes a worldwide adoption of the same. Many other emerging economies in the world are trying to implement similar identification programs. For example, Brazil and Indonesia are implementing national identification programs with biometric features,  while the Ghana card was developed to deliver public services.

Malaysia’s national identification program (MyKad card) is considered one of the most advanced programs in the world and was launched in 2001. It is proof of residency and can be used as a driving license, passport (within Malaysia) or an ATM card. The basic difference with the Indian Aadhaar card is that the Malaysian government grants freedom of choice to its citizens where to use it. According to the Indian apex court ’s recent ruling, people will have the option to opt out of the system in a few instances.


Aadhaar has been a big step forward towards achieving the vision of a “Digital India”. It aims to become the most important identity proof for Indian citizens. Digital identity is gaining traction worldwide and is being used more commonly now. One common application is the operation of smartphones with fingerprints or eyes. One of the biggest criticisms of the Aadhaar scheme is that a large amount of personal details is collected by UIDAI. However, the details collected during the creation of Aadhaar accounts like core biometrics are being secured through strong encryption. The Aadhaar ecosystem is also subject to audits from time to time. Aadhaar is one of the biggest structural reforms undertaken by the Indian government aiming at the formalization of the Indian economy.


Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

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