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Hundreds of millions of people around the world don't have a legal record of identification. Legally, they don't exist. Most of them are in the developing world—and they can't access services like healthcare or education, or get food rations or fuel subsidies. But what happens when more than a billion people get a digital ID in just five years?
“I don’t think people have fully internalized the agency that this gives,” says Nandan Nilekani, co-founder of the tech giant Infosys, on this week’s podcast. “The fact that you can go to any PDS [Public Distribution System] outlet to get your rations, go to any BC [business correspondent] to withdraw money—the bargaining power shifts from the supplier to the consumer.”
Nilekani is the founding chairman of the Unique Identification Authority of India, which devleoped Aadhaar—India's biometric ID system that has changed how the country's government provides services and subsidies.
According to Nilekani, 1.18 billion people are currently enrolled in Aadhaar, 12 billion dollars have been transferred using the platform, half a billion bank accounts have been linked to the platform, and India has saved 9 billion dollars by cutting down on fraud and waste.
But opponents of the system say that Aadhaar erodes people’s privacy, pointing to an Indian Supreme Court ruling that privacy is a constitutional right. “Yes, privacy is a fundamental right,” Nilekani says in the podcast. “However, the state can circumscribe certain privacies of people for certain good goals. . . . When the Aadhaar case gets taken up, it will pass the Supreme Court with flying colors.”
Hear his full response below.
For Nilekani, Aadhaar is just the beginning of a new era of innovation, built on digitally-enabled “societal platforms.” He is already putting this approach to work in the area of education, as the Co-founder and Chairman of the EkStep Foundation, and sees great potential for private development as well: “The next wave of innovation will be private innovators using this to come up with ideas which we can’t even fathom,” he says.
Listen to the full podcast at the top of this page and be on the look out for forthcoming CGD research on Aadhaar—including the results from a massive on-the-ground survey of Aadhaar users. In the meantime, you can hear more of what Nilekani had to say about Aadhaar on our website.
Aadhaar, the world’s largest biometric ID program, is at a crossroads. After a remarkable effort to enroll almost the entire Indian population of 1.25 billion in just over half a decade, its impact on privacy and distribution public benefits are being called into question. The concerns stem from the absence of a legal framework for collection and safeguarding of biometric information, as well as the policy framework that effectively makes Aadhaar authentication mandatory for accessing a variety of public services. In addition, there is disquiet with persistent efforts to persuade people to link bank, mobile, and tax accounts to Aadhaar in the face of uncertainty over the legal basis for this requirement. With the Supreme Court of India conducting hearings on a slew of petitions challenging its constitutional validity, it is fair to say that Aadhaar’s future and that of India’s digital governance reforms, hangs in the balance.
India’s Aadhaar debate is being closely watched across the world. Over a hundred countries—a majority of them in the developing world—have initiated programs that provide some form of digital identification for their constituents. Aadhaar’s approach is appealing to many countries. It collects minimal biographic data and avoids the problem of fragmented biometric databases and proprietary technologies that increase costs and reduce gains from digitization. Moreover, with the electronic Know Your Customer (e-KYC), Aadhaar has significantly expanded banking and financial services to the poor, streamlined government payments through direct transfers to beneficiaries, and enhanced the verification of existing and new mobile connections. These are important lessons that other countries are keen to learn from India’s experience.
Balancing development priorities and privacy concerns
The Aadhaar debate will therefore have an impact on the global discourse on how to balance the gains from better governance with individual’s right to privacy and protection of personal information in the digital age. ID programs are, of course, only one element of the general process of digitization that has been moving ahead rapidly across the world, including government, business, and social media. As recent events highlight, not all large data breaches involve centralized ID programs, and there also is no evidence that Aadhaar’s biometric database has been breached. Yet, by creating a common identifier, such programs do make it easier to integrate individual records across a variety of databases. The recent introduction of the “Virtual ID” is intended to mitigate this risk by providing users the ability to authenticate against a variable number; what remains to be seen is how widely it will be used.
Privacy aside, these are a number of distinct but often overlapping considerations that supporters and critics of Aadhaar need to weigh more carefully. The primary expressed motivation of Aadhaar has been to create an identity management and authentication system that would enable the government to improve the lives of the people. In rich countries as well as developing ones, poor people are frequently disadvantaged without having a trusted, recognized, and verifiable identity, especially in access to essential public services. Digital identity can increase state capacity to expand the beneficiary base for public goods and services while reducing the chances of corruption and “leakages” from inclusion of ghost and duplicate beneficiaries at the same time.
In considering the emerging lessons from India, one clarification to note is the difference between cleaning beneficiary rolls and changing the method of delivering benefits. On our recent visit we found very little discussion of what has been a relatively successful reform in the energy sector compared to other countries. Our recent paper on the reform of cooking gas subsidies in India (cited in the submission of the Attorney General of India to the Supreme Court on the constitutional validity of Aadhaar) explains how this this reform changed the mode of subsidy on cooking gas cylinders from in-kind to a direct transfer to the consumer’s bank account. This enabled the government to move from an administered price regime for domestic LPG to one where the consumers paid the market price and the subsidy was transferred directly upon delivery of the cylinder to the registered customer. The initial deduplication of LPG beneficiaries was undertaken with algorithmic matching of names and addresses that resulted in the issuance of a unique LPG ID number and this was only later tagged with Aadhaar and linked to bank accounts for the seamless transfer of the cash subsidy to consumers.
However, there is a continuing benefit of Aadhaar from maintaining the beneficiary list clean. This is done when new connections are issued, as in the case of the Ujjwala program that has provided new LPG connections to nearly 30 million poor rural women within the last two years. In the current scenario of increasing volatility in global energy prices, the gains from this reform could be substantial.
Improving quality of service delivery through digitization
A second point is the distinction between service quality and potential exclusion. In a recent survey on the perception and experience of digital governance that we conducted in Rajasthan, nearly half of the respondents said that they preferred the new system of LPG subsidy transfer over the previous one, with very few asserting the opposite view. As expressed by respondents, this was mainly due to the perceived reduction in corruption and black-marketing of subsidized cylinders diverted by dealers. Similarly, responses by beneficiaries of food rations through the public distribution system (PDS) showed that more preferred the new Aadhaar-enabled system than the previous system, again because they felt that their rations could no longer be diverted by unscrupulous dealers. These cases suggest the potential of digital systems to improve service delivery.
However, most of the debate has been focused on claims that PDS dealers are denying food rations, a constitutionally mandated entitlement, in the case that Aadhaar authentication of the beneficiary fails at the point of sale. Indeed, the government’s own submission to the Supreme Court flagged a problem. The Unique ID Authority of India (UIDAI) which is the custodian of Aadhaar’s database, stated that biometric authentication failure rate for fingerprints (after three attempts) was nearly 12 percent in government programs compared to 5 percent in banks and 3 percent for telecom operators. Other reports, including our own survey, suggest a rate of between 2 and 4 percent after repeated attempts.
The government’s figure is therefore unacceptably high when it comes to disbursal of benefits especially to poor and remote communities most in need. More understanding is urgently needed of the reasons behind their figure. In addition, it increases the importance of having effective protocols to manage exceptions, such as mobile one-time password (OTP) or iris-scan or authentication by a local authority. In Andhra Pradesh, the village Revenue officer is allowed to authenticate a beneficiary if needed as a last resort—a human response to possible failure of technology. Authentication failures of the magnitude cited in the government’s submission should serve as a wake-up call to urgently address this issue. Moreover, there could be a policy review to determine the need for “gold-plated” authentication of beneficiaries every time they access a service. Sometimes, the one-time deduplication of beneficiaries using Aadhaar may be more than sufficient for better delivery of services. When it comes to Aadhaar authentication, the best should not become the enemy of the (still very) good.
While I welcome criticism and comments on the Doing Business (DB) report—or any other data and research product of the World Bank, for that matter—I find Justin Sandefur’s and Divyanshi Wadhwa’s (SW) recent blog posts on DB in Chile and India neither enlightening nor useful.
In 2013, an external assessment of DB recommended, among other things, that the set of indicators be broadened to better reflect the challenges that entrepreneurs face and make DB a more comprehensive benchmarking tool for business regulation. In particular, indicators reflecting gender differences, reliability of electricity, and “trading across borders” were either introduced or significantly revamped. These changes were adopted after extensive consultations with academics, country officials, and Bank staff, management, and members of its Executive Board. Because of these significant changes to the methodology, we discourage comparisons of rankings across the year of the change because it would be like comparing apples with oranges. Even if you wanted to compare the same set of indicators across two years, the data simply don’t exist. For example, prior to 2015, DB’s trading across borders indicator set also measured the volume of documentation needed to comply with border controls. This is no longer part of the indicator set and, hence, the relevant data are no longer collected.
Chile and India
Despite this gap in data, SW, in their blog post, use various data assumptions to calculate what Chile’s scores would have been had the methodology changes not been introduced. They find the scores and Chile’s rankings would have been different from those using the new methodology. This is not surprising since Chile’s performance on the additional indicators (as well as that of other countries) will influence its score and ranking. SW use this unsurprising finding to claim that the DB indicators “aren’t credible” because of massive movements in the numbers due to changes in methodology. But, as mentioned above, the changes to the methodology were introduced after careful consideration and widespread consultation. There is no reason to revisit that decision based on the fact that the changes led to a difference in one country’s ranking (relative to the no-change-in-methodology scenario).
In the post on India, SW find that the changes to India’s ranking were not due to changes in the methodology, but due to the addition of several countries in the sample. But any ranking is a statement of how that country fares relative to the other countries in the sample. When Usain Bolt comes first in a 100-meter race, he is first relative to the other players in the race—not relative to a hypothetical set of competitors. Again, this is a point we continuously emphasize in disseminating the DB rankings—especially to those countries that have undertaken many reforms but see no change in their ranking because other countries in their “ranking neighborhood” have done even more.
I should add that India has significantly stepped up the pace of reforms in the last four years. During the past year, India was one of only three countries in the world to carry out eight reforms in a single year. By the way, DB has added only one country (Somalia, ranked 190) to the sample during the past four years. In short, India’s DB performance is directly attributable to the reforms undertaken.
There are many important criticisms that can be made of Doing Business, but pointing out that scores and rankings change because of changes in methodology or in the sample of countries are not among them.
Note: In the past few weeks, we’ve published two pieces examining the controversy over the World Bank’s Doing Business index, which measures the regulatory burden facing businesses around the world. Our first piece examined the case of Chile, investigating the World Bank Chief Economist’s accusation the Bank had manipulated its own data to embarrass Michelle Bachelet’s Socialist government—an accusation which was withdrawn before the Chief Economist resigned on January 24. Our second piece questioned the results for India, whose sudden rise in the World Bank rankings has been celebrated by Narendra Modi’s government. Above is an unedited response sent to us by Shanta Devarajan, who is Senior Director for Development Economics at the World Bank, and also a member of CGD’s Advisory Group. – Justin Sandefur and Divyanshi Wadhwa
While Modi has celebrated India’s rapid rise in the Doing Business rankings, the World Bank’s Chief Economist recently resigned amid controversy over methodological changes. Without those changes, India’s “jump” in the rankings looks much more modest.
Speaking to the assembled billionaires at Davos last month, India’s Prime Minister Narendra Modi announced triumphantly that “the largest democracy on earth is also the fastest growing major economy.” Modi used the platform to advertise that “India is open for business” and tout his accomplishments as an economic reformer—and that claim seems to have the backing of international financial institutions.
Last October, the World Bank announced that “India Jumps Doing Business Rankings with Sustained Reform Focus” moving from 130th to 100th overall. (Note the focus on the jump, or change.) The Indian press and pundits declared that the Bank had “endorsed Modi’s reform credentials.” Modi himself turned the change in Doing Business rankings into a talking political sales pitch.
Historic jump in ‘Ease of Doing Business’ rankings is the outcome of the all-round & multi-sectoral reform push of Team India. pic.twitter.com/DhrEcuurgi
On January 12, the World Bank’s chief economist at the time, Paul Romer, told the Wall Street Journal he had lost faith in the integrity of the Doing Business index, suggesting it was being politically manipulated—particularly to embarrass Chile’s socialist president Michelle Bachelet. After a public rebuke from the World Bank CEO, Romer retracted the remarks, and then on Wednesday announced his resignation.
But as we showed in our “chart of the week”a few weeks back, the pattern Romer had uncovered speaks for itself. And Chile wasn’t the only country affected. The methodology changes pushed dozens of countries up and down as well—which bring us back to India’s recent performance on the index.
How did India perform if we ignore the questionable methodological changes?
Somewhat awkwardly for the World Bank, India’s celebrated rise in the Doing Business rankings turns out to be mostly an artefact of methodological changes.
A few weeks ago we presented new data and analysis that reproduced the Doing Business rankings, dropping all of the new indicators that had been added over time, and only reporting changes for a fixed sample of countries. In an index with a more consistent methodology, Chile’s rise and fall disappears, and—if you scroll down to the bottom of last week’s post—so does the “Modi bounce.”
One comment we heard was that our “corrected” index was too narrow, ignoring the new and sometimes valuable features Doing Business has added. So to overcome that, we’ve gone back and tried a second approach, with much the same results for India: no recent spike in the rankings.
This time we use all the indicators available for a given year, relying on the World Bank’s own scores for each country and each component. Instead of dropping new indicators, we splice the series together whenever there is a methodological innovation. So for instance, when the World Bank changed the underlying indicators in the “ease of getting credit” index in 2014, they kindly reported the score using both methodologies for that year. India scored 81.25 on the old methodology in 2014 and 65 using the new method. Our approach is simply to multiply all of India’s credit scores by 1.25 (=81.25/65) for every year after 2014, so there is no artificial jump in India’s credit score.
The chart above has been updated to correct a mistake spotted by a reader, Vinayak Garg, who helpfully downloaded our data and code to reproduce the graph. The text of the post remains unchanged by this correction. Click here to see a side-by-side comparison of the corrected version and the original graph, which inadvertently omitted some sub-components from the index. The main point stands: the official Doing Business rankings show India rising 30 places in 2018, where as we previously found India rose only 7 places. After correcting our coding error we find India rose only 5 places, but from a higher starting point under both Congress and BJP governments.
Whichever method we use, once you iron out the methodological changes, India’s recent jump in the Doing Business rankings looks much more modest. To its credit, the World Bank office in Delhi cautioned against focusing on changes in the rankings when this issue reached public prominence in India. But those cautions were probably outweighed by the World Bank’s very own headlines, encouraging a misleading focus on India’s spurious “jump.”
A very misleading headline from the World Bank…
Which methodological changes explain this spurious jump? If we break the index down into its pieces (see below), we find that there was no single piece of the index that made the difference. Even the aggregate scores are not very different when comparing the official Doing Business scores and our revised series that irons out methodological changes.
The big change comes from ranking, not scoring. Because many countries perform similarly on the index, even small discrepancies in the score can produce wild swings in the rankings, which appears to have happened in India’s case—a point Martin Ravallion, former manager of the World Bank’s research department, has pointed out recently as well.
It seems that India’s rank moved up and down more due to the addition of new countries to the Doing Business sample than changes in methodology.
Even if you love the Doing Business index, you should acknowledge changes in ranking mean very little
Reasonable people disagree about the usefulness of the index. Critics point to serious conceptual flaws, like measuring the costs of regulation while ignoring the benefits, and how poorly the index predicts actual conditions as reported in business surveys. Defenders note that the index has spurred many countries to accelerate regulatory reforms which, they contend, has boosted growth. This debate won’t be settled anytime soon.
Reasonable people should all agree, however, with one simple fact: changes over time in the Doing Business rankings are not particularly meaningful. They largely reflect changes in methodology and sample—which the World Bank makes every year, without correcting earlier numbers—not changes in reality on the ground.
It is probably coincidence, rather than a nefarious neoliberal plot hatched in Washington, that these changes helped a right-leaning government in India and hurt a left-leaning government in Chile. But you don’t have to be a conspiracy theorist to think the World Bank has been irresponsible in posting headlines about “jumps” in the Doing Business rankings, when it knew these numbers weren’t comparable over time. If it isn’t scrapped altogether, serious reform of the methodology and governance of the Doing Business index are needed.