New Delhi: The transformation of India’s subsidy system to one in which cash is paid directly to the intended beneficiary is faced with a situation in which none of the various government agencies involved is willing to assume responsibility in cases of fraud, according to two people familiar with the development.
The programme, the pilot of which was launched on 1 January, identifies recipients based on the Aadhaar numbers issued by the Unique Identification Authority of India (UIDAI), which records the person’s biometric attributes and other details.
The finance ministry contends that the responsibility for fraudulent transactions should be borne by UIDAI and not the banks that will route the payments to beneficiaries.
“If the authentication is being done based on Aadhaar, then why should banks be held liable? If UIDAI is confident that they have built a tamper-proof system in Aadhaar, then why should they hesitate in taking responsibility?” said one of the officials cited above.
The direct cash transfer programme is one of the most important measures the government has undertaken since September to end a policy logjam as part of a bid to better its image, rein in the ballooning fiscal deficit and improve the investment climate amid slowing growth.
UIDAI is reluctant to assume the liability since that’s not part of its mandate or area of functioning.
The second government official said in defence of UIDAI that even though the current system of Aadhaar-based authentication is being made robust and foolproof, fraud can happen in any system anywhere in the world, no matter how robust it is.
“One should compare the extent of fraud which is happening using the current system of subsidy payments and the chances of fraud happening through the UID-based authentication system in the future, especially when the transactions involved will be not more than Rs.1,000-2,000,” the official added.
Also, the list of beneficiaries, along with the bank accounts and the Aadhaar number, are finalized by the ministries concerned that run the relevant welfare programmes.
Given the number of government departments involved, the government has sought the law ministry’s opinion on whether UIDAI, banks or the relevant ministries administering the welfare schemes should be liable for any fraudulent transaction, said one of the officials cited above.
Under the government’s ambitious cash transfer scheme, the bank accounts of the beneficiaries will be credited directly using the unique identification number, or Aadhaar.
While a pilot programme was initially meant to be rolled out in 51 districts, it was eventually launched in 20 for 26 schemes at the start of the year. But in the first phase, this was restricted to pensions and scholarships, excluding other programmes such as the national rural jobs guarantee scheme and food subsidies that see significant spending.
The cash-transfer programme calls for the government department responsible for a particular welfare scheme to give the name of the beneficiary along with his or her account and Aadhaar number to a bank, also known as the sponsor bank. The bank then sends the details to the National Payment Corporation of India, which then credits the bank in which the beneficiaries have an account through the Aadhaar payment bridge system. The money then goes to the Aadhaar-enabled account of the beneficiary.
The money can be withdrawn through an automated teller machine (ATM) or a business correspondent (BC). The BC uses two verification methods. One is authentication—matching biometric information (such as a fingerprint scan) with the Aadhaar database. The other is using the bank’s database to identify the beneficiary. The first method requires Internet connectivity, which may not be available in rural areas.
“The question is whose liability is it if somebody fraudulently withdraws money from someone else’s account by misusing the authentication service?” said the second government official cited above.
The official added that there was a “one in a million” chance of a person actually being able to fake another’s biometrics for reasons of fraud.
The person also said that there was a contingent liability fund in every organization that covers such eventualities.
The government should try to make cash transfers as foolproof as possible before rolling it out nationwide, said N.C. Saxena, member of the National Advisory Council, which sets the government’s social agenda.
“The scheme will involve many stakeholders like the various government departments administering subsidies, pensions and scholarships,” he said. “The government should look to solve all issues that the pilot will throw up and then go in for a nationwide roll-out.”