On Friday, the Lok Sabha stamped its overwhelming approval on the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill. Since it is a money bill, the Rajya Sabha cannot exercise a veto. It is for all practical purposes just short of becoming law.

In effect, 985.16 million holders of the 12-digit individual identification number issued by the Unique Identification Authority of India are on the verge of having their Aadhaar card endowed with legal backing. So far, its legitimacy had been based on a notification issued by the erstwhile Planning Commission. Critics railed against this rather casual approach, and rightly so—to a body which is the repository of key personal information of individuals and therefore risks breach of privacy—and used this to challenge the legitimacy of Aadhaar in the Supreme Court.

What the National Democratic Alliance (NDA) government did on Friday was to delink the two battles. By giving Aadhaar statutory backing they made it legal, restricting the ongoing dispute in the Supreme Court to concerns of privacy (which can also be dealt with adequately if the government brings forward legislation aimed at protecting privacy of information, conceived during the tenure of the United Progressive Alliance, or UPA, but deftly consigned to the bureaucratic maze).

This is a big deal. Effectively, it means that Aadhaar can be used in official dealings. It is a key part of the “JAM Trinity"—Jan Dhan, Aadhaar, Mobile—that will drive the government’s ambitious plan of a technology-enabled, real-time direct benefits transfer system.

In the first stage, JAM dealt with the transfer of cooking gas subsidies directly to the accounts of customers. Since the coordinates are so specific, the use of JAM reduced leakages rather dramatically—by 25%. However, extending this experiment to other benefits was becoming an issue—partly because there was a last-mile challenge of financial inclusion, and also the legitimacy issue surrounding Aadhaar. With the latter fixed, the government can now focus its energies on pushing the last mile on financial inclusion.

A key to this is payment banks, 19 of which were granted licences by the Reserve Bank of India last year, including Airtel M Commerce Services Ltd, part of Bharti Airtel Ltd, which has a customer base of nearly 240 million, and the department of posts, with about 150,000 post offices, nearly 140,000 in rural areas.

To them, Aadhaar as an e-identity is key to keeping transaction costs down and thereby providing a business model to financial inclusion. But this came under a cloud following the legal challenge in the apex court; presumably, this will end once Aadhaar becomes law (the Rajya Sabha has to return the bill in a fortnight from now).

The journey of Aadhaar has come a full circle and, technically, has had the backing of three regimes—the NDA under Atal Bihari Vajpayee, the two-term UPA led by Manmohan Singh and now the Narendra Modi-led NDA. In that sense it is a rare piece of legislation on which there is political consensus among the two major national parties, the Bharatiya Janata Party (BJP) and the Congress.

Its genesis lies with the first NDA government, when the idea was mooted to provide a citizenship card. A group of ministers under then home minister L.K. Advani suggested the creation of a multipurpose national identity card. Like all proposals this bobbed around the system and was eventually inherited by the UPA—which is where it started assuming the shape of Aadhaar.

A pilot project for the use of a unique identification card for those below the poverty line was kicked off under the aegis of Arvind Virmani, then principal adviser in the Planning Commission. It went through various hoops and eventually found fruition in UPA-2, when Singh, in a bold move, inducted Infosys founder Nandan Nilekani to head the project.

It is another story altogether as to how internal wrangling within the UPA-2 cabinet all but sabotaged the idea and creation of Aadhaar. To Nilekani’s credit, he managed to steer it through, but failed to convince his political bosses to push hard enough for statutory backing (and, of course, the BJP, then in the opposition, played its part by bouncing it around in parliamentary committees).

Once again, the Aadhaar legislation was at the risk of being pipped at the post, especially with the Congress determined to undermine the passage of legislation in the upper house. Purists might object that the government chose to introduce it as a money bill to evade a rebuff by the Rajya Sabha, but then sometimes politics is all about bold initiatives (check out the antics of the Underwoods in season 4 of the TV series House of Cards to get a sense of realpolitik).

Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics.

Comments are welcome at capitalcalculus@livemint.com His Twitter handle is @capitalcalculus

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