Government Should Hasten Slowly On E-Cash And Aadhaar: The Risks Outweigh Rewards

Government Should Hasten Slowly On E-Cash And Aadhaar: The Risks Outweigh Rewards

by R Jagannathan - Tuesday, April 25, 2017 11:47 AM IST
Government Should Hasten Slowly On E-Cash And Aadhaar: The Risks Outweigh RewardsAadhaar cards. 
  • Both in the case of Aadhaar and digital money, the government cannot afford to rush headlong into popularising them without care and preparation.

    The issue of building public confidence in these products and platforms has to come first.

The government should hasten slowly in the way it is pushing Aadhaar and digital money. Both are great ideas, putting India several laps ahead of the world in many ways, but the last thing we need is to endanger their acceptability by shoving them down unwilling throats prematurely before the risks associated with their spread are addressed.

Last week the Supreme Court asked why Aadhaar was made mandatory for filing tax returns. Around the same time, a Jharkhand government website revealed the personal details of more than a million pensioners. It is quite possible that the flunky who thought this was a good idea believed he (or she) was pushing transparency and e-governance. This leakage of personal data – which puts individuals who earn pensions at risk of being accosted by thugs – may thus be the result of poor understanding of the need for protecting private data rather than mala fide action. But that’s the case for going slow: you can’t push technology without educating masses of users on the consequences.

Then we have digital cash. Post-demonetisation, when it became clear in the early days that there was not going to be any bonanza from black money, the government changed the goalposts and adopted the slogan of a “less cash” economy as its raison d’etre. Since then the Narendra Modi government has been relentlessly campaigning for digital wallets, the Bhim app based on the unified payments interface, lower merchant discounts on card use, and electronic and mobile banking. Hence the Digi Dhan Melas and daily bursts of advertising and events to get people out of the habit of cash.

This too will be counter-productive. The more the government pushes non-cash like religion, the more the number of atheists that will be born. Religion that needs too much selling probably has nothing much to commend it. No surprise, ATMs are now emptying as fast as they were during November and December 2016. People are again tanking up as though cash may be going out of fashion.

The case for hastening slowly in Aadhaar is simple: you cannot put the cart before the horse. Else its abuse will outweigh its use. It needs to do two things.

First, the government must audit the system from end-to-end, to check where data can be leaked and plug those holes. Two obvious points of leakage are the data capture points when people come to enrol for Aadhaar, and the data download points (when governments or companies use Aadhaar numbers to authenticate beneficiaries or customers (e-KYC, so to speak). When people fill in forms to let the Aadhaar data merchants enter the data into the system while capturing your biometrics, the same form remains with them. And if they offer to make Aadhaar cards for you for an additional fee, they can now match the two.

Also, when, say, a Reliance Jio uses e-KYC to give you an instant data connection, the Aadhaar authentication process allows the company to download your personal details (name, age, sex, address, etc). What is the use of claiming that Aadhaar is secure when data can be accessed at least at these two points, and the people involved are not part of the data protection chain?

Clearly, the law needs to cover not only biometric data protection at the Unique Identification Authority of India (UIDAI), but also with anyone who collects or uses the accompanying text data. Privacy laws have to cover anyone who handles the data collected by the UIDAI. A robust data protection law will cover not only the UIDAI, but everybody who collects customer data in India from anywhere (banks, telcos, app-based taxi aggregators, Google, Facebook, Apple, Amazon, government, et al),

The second issue involves training and sensitisation of people on privacy issues. The Jharkhand data leak may not have happened if the person who put out those details knew it was wrong and punishable.

Now, digital cash. The success of digital cash needs to go through the same route that established cash as king. Cash came into being when receipts against gold holdings became tradable. In short, the paper became the money once people saw that it was the same as holding gold. While governments reneged on the promise to give gold in lieu of that piece of paper, the credibility of paper money had gone so high that users were willing to overlook this.

It has to be the same with digital cash. People have to learn to substitute SMSes and screen displays of their money as the real thing and not the paper stuff they have learnt to carry around.

This again calls for two major actions on the government’s part.

One, it has to create network effects for digital money first by focusing on geographical clusters. Right now the government is promoting all kinds of digital products mindlessly, thus confusing the daylights out of people unused to this form of payment transactions. Money in any form becomes acceptable when everyone around you does the same. So it makes no sense for someone in Village Rampur to accept digital money if the local kirana guy won’t accept it as payment. The whole of Rampur needs to be willing to accept digital cash. The same goes for cities. I still need cash in Mumbai because a whole lot of people – from autorickshaws to maids to bus conductors to kirana shops – won’t accept digital cash.

The simple solution is that the network has to be created geographically, one cluster at a time. If you focus on Mumbai or Bengaluru to push digital cash, in one year all government departments, taxis, buses, shops and companies will start accepting e-cash to settle dues. Once a minimum number accept e-cash as good enough, the network effects will make sure that digital money becomes the norm.

So, the government needs to adopt the cluster approach to spreading digital money, possibly by choosing five major cities to push it first, apart from, say, two districts in each state. Once proof of concept is established, no one will stop the spread of digital money. It will become the default option for settling payments and dues.

The second aspect is safety. Consider the risks the government is running by pushing digital money and the Bhim app without establishing a system of preventing loss due to frauds and technology failures. In July 2016, reports The Hindu, $171 million was stolen by global hackers from Union Bank, but luckily the fraud was noted early and the money recovered.

But consider what would have been the consequences if the same amount had been stolen Rs 100 apiece from millions of accounts, and the user did not realise it for a long time. Would people still use digital money if headlines blaring “Rs 100 crore stolen from 10 million e-wallets” were to be read by millions. Even if no one ultimately lost any money, digital cash would come a cropper.

The government needs to make a law and provide for instant compensation for losses upto a certain level before pushing digital cash to the poor. The rich can afford to lose a few thousands due to hacking, and wait for months for banks to compensate them, but will the farmer who loses Rs 1,000 before sowing season be ready to accept this as one of those things that can happen to anybody?

Both in the case of Aadhaar and digital money, the government cannot afford to rush headlong into popularising them without care and preparation. The issue of building public confidence in these products and platforms has to come first.

Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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