Don't Throw the Baby Out with Bathwater! Is Aadhaar the Reason for Failure of Direct Benefit Transfer Pilots?

This note discusses the challenges faced by Aadhaar that might have resulted in the Indian government's decision to suspend the Direct Benefit Transfer for LPG consumer (DBTL) scheme. The Aadhaar unique identification scheme captured bio-metric details of individuals for authentication, following which the GoI intended to convert subsidies and some other benefits into cash and deliver the money direct into individual beneficiaries' accounts. The note identifies the following challenges that surfaced in the early stages of DBT implementation through Aadhaar:

• Beneficiaries did not receive their Aadhaar card in many cases because department of posts did not deliver it;
• Substantial proportions of beneficiaries do not have a bank account, often because they lack proper Know your customer (KYC) documents;
• For those with accounts, the account has to be linked to or "“seeded"” with the beneficiary's Aadhaar number for the DBT to take place. Since no standard process was defined for seeding, confusion prevailed;
• Money withdrawal from agent points had to be authenticated by UIDAI, and there are not many agents with micro-ATMs for Aadhaar-based biometric authentication, where beneficiaries can transact.

The note concludes that Aadhaar-based DBT needs a more sustained and coordinated effort from local government, banks, and business correspondents to realize its potential.