Aadhaar to have key role in cutting costs: Trai chairman R.S. Sharma
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New Delhi: Aadhaar will play a key role in lowering transaction costs as India moves towards a cashless economy, Telecom Regulatory Authority of India (Trai) chairman R.S. Sharma said on Friday at EmTech India, organized by MIT Technology Review and Mint in New Delhi.
Aadhaar, the number issued by the Unique Identification Authority of India, is key for most of the government’s social security programmes as well as India’s transition to a cashless economy. With Parliament passing the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill 2016, the project now has statutory backing, enabling it to become the cornerstone of India’s digital economy.
Sharma said India has become the first country to implement the cheapest online identification and authentication system on such a massive scale.
“The overall cost of Aadhaar has come out to be $1.5 billion over seven years. India will soon have 1 billion Aadhaar cards. That means, for registration, verification, authentication, execution and maintenance, the per person cost comes out to be $1.5,” he said. “This, when you benchmark against UK’s identity authentication programme which cost £135 per person, is revolutionary.”
Aadhaar, which has recently got legal backing, is a very powerful soft digital infrastructure that is just getting started in India, according to Sharma, who was associated with the UID programme since its inception along with Nandan Nilekani.
“Whenever a new technology comes out, there is always a time lag of two-three years before it can be fully adopted,” he said. “With Aadhaar, we have already started. The LPG subsidy transfer is just scratching the surface of it. There is an exponential potential to use Aadhaar in banking, financial inclusion and in the entire process of moving towards paperless transactions.”
Sharma explained: “The only way we can drive down the cost of transactions is using Aadhaar. For instance, an ATM transaction costs Rs.20 per transaction. Similar transaction of taking out money from a bank teller costs Rs.40 per transaction. A person living in a rural area has to travel till the ATM or the bank to take the money out, but with Aadhaar, the same thing can be possible on mobile through the online authentication process.”
Aadhaar is also expected to play a crucial role in addressing the credit problem for people at the bottom of the pyramid.
“Big banks have been reluctant to provide loans to those who are at the bottom of the pyramid due to the lack of credit history. Micro-financing companies charge very high interest when lending to the poor,” said Sharma. “Aadhaar solves that credit problem.”
“The digital transactions trail will help build credit history of the poor, which will improve their access to credit,” said Sharma. “Aadhaar can provide online KYC (know your customer) for people with little or no credit history to the institutions such as banks requesting for it, which makes opening bank accounts easy without any paper. It also facilitates easy cash withdrawals.”
He added: “Digital transactions can be authenticated using Aadhaar. From no identity, we have moved towards online identity.”
Industry experts feel that if the Indian economy has to go cashless, the cost of transactions has to come down.
“At this point of time, the country needs high-volume, low-value transactions to be handled at a low cost,” said D.B. Pathak, professor at the department of computer science and engineering, Indian Institute of Technology Bombay.
According to a recent study conducted by MicroSave, an international financial inclusion consulting firm, if banks and telecom operators in India start using Aadhaar-enabled e-KYC process for customer acquisition (opening bank accounts and registering new customers), they can save an estimated Rs.10,000 crore over the next five years.