Economic Impact of Aadhaar

On 25th November 2016, replying to a parliamentary question on Aadhaar based welfare delivery mechanism, Minister of State for Finance said in Lok Sabha, “World Bank in its World Development Report 2016 in Chapter 3 (Delivering Services) and in Spotlight 4 (Digital Identity) has recognized the use of Aadhaar as a digital ID in India for implementing direct cash transfer programs resulting in savings through reduced leakage and efficiency gains in government expenditures. Further, in order to ensure that the benefits of the schemes reach the actual beneficiaries, payments are made to the actual beneficiaries in their Aadhaar linked bank account through Aadhaar Payment Bridge (APB).” The vital statement made by the Minister proves the commitment of the Government to utilize Aadhaar as the aadhaar of targeting right beneficiaries without much leakages.

The much acclaimed JAM (Jan Dhan-Aadhaar-Mobile) Trinity through the usage of financial and digital inclusion is trying to change the socio-economic condition of society. It is largely helping the disadvantaged and distressed classes of people in availing the benefits of major Government schemes and subsidies. For instance, Schemes like MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) and PDS (Public Distribution System) have started using Aadhaar card for the purpose of Direct Benefits Transfer and supply of food grains to the BPL people, etc. which has resulted in elimination of ghost beneficiaries and widespread corrupt practices. Aadhaar enabled targeting has resulted in identification of beneficiaries in more fruitful ways from the Government’s perspective.

Even the education sector can be a great beneficiary of Aadhaar enabled payments, for instance in providing the scholarships for students. Aadhaar as a medium of citizen centric governance can prove to be an effective instrument when the schemes like Mid Day Meals and National Nutrient Mission will achieve higher success through this tool. From child welfare to social security and pension, Aadhaar can help the Government in making every rupee count!

Moreover these days, financial services are being linked to Aadhaar at a rapid pace. The banks have been instructed to go for KYC (know your customer) for the functioning of bank accounts which will be also simultaneously linked with PAN Cards. Hence, a system of true checks can be installed upon the banking systems. Due to the impact of demonetization, taxmen have a wealth of information on possible tax evaders. On the one hand, there are 111 crore Aadhaar numbers issued which are linked to PAN Cards and will make it very difficult for tax evaders.

In addition to that, Aadhaar enabled payment system can benefit a large number of farmers who go to sell their produce at the agriculture markets. If payments are made directly to them (Direct Benefits Transfer), it will boost financial inclusion and credit worthiness. The banks can offer those loans and crop insurance which can revamp agriculture sector.

The future of Aadhaar is almost here for us to witness. The 12-digit Aadhaar number could soon be a single point payment address for sending and receiving money without needing to link it to a bank account, once the IndiaPost payments bank becomes operational in September 2017, according to reports from The Economic Times recently.

Aadhaar as an idea provides a single view of beneficiary data and information, aiding in streamlining policy decisions for the state. It will create an enabling ecosystem for data-driven governance in India. To conclude, Aadhaar’s impact on our economy has just started to show results but the future is even brighter and we can expect Aadhaar to be a game-changer!


Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

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