A new book studies 15 court cases passing judgement on India’s economic and financial strategies

It has been said that there is no such thing as a free lunch. Whenever a person gets any benefit, there is always a cost that may be explicit or hidden. In economics, this idea is captured as the concept of “opportunity cost,” or the idea that often a financial decision involves a trade-off where one goal may have to be sacrificed to secure a competing goal.

A rational person is supposed to balance these contradictory claims and arrive at the most logical and efficient outcome. This spectre of mutually inconsistent and competing interests is often found in the field not only of economics but also in the adjudicatory process. Just such a dispute arose in the case of the Aadhaar scheme where the interests of efficient utilisation of State resources were pitted against the privacy interests of the individual.

In the case of the Aadhaar scheme, the alleged clash between competing interests was particularly stark, and the differences further magnified, by the emotional and political nature of the debate around the issues.

The Aadhaar project was envisaged as a means to enable an efficient distribution of State largesse.

The country had a leaky system of subsidies, where a large amount of subsidy money never reached the intended beneficiaries. To counter this, a system of transferring benefits directly to a person was proposed, whereby the intended beneficiaries would be paid the subsidy amount in cash rather than through the sale of subsidized goods. An important limb through which this system of direct transfers was to be operationalised was the issuance of a unique identification number to each resident of the country. To ensure that there was no duplication of beneficiaries, the system required that certain biometric parameters unique to the individual would be linked to the ID.

The benefits of the scheme included the promise of helping those citizens who truly needed government aid. This would, in the eyes of the proponents of the scheme, be a win-win situation. The poor would get money equivalent to the subsidies intended for them and the country would stand to gain through the elimination of waste and corruption that was endemic in the system.

The costs, at least to the opponents of the scheme, included the potential loss of privacy of a person who was to be compulsorily enrolled into the database. Coupled with this was the fear that the database could be hacked and put to misuse by State as well as non-State actors. The argument seemed to crystallise into the question whether it was worthwhile to give up part of your privacy so as to ensure that government subsidies were efficiently distributed.

The debate polarised activists and economists often on the grounds of their ideological convictions rather than on the issues raised. It was in this background that the Supreme Court of India was called upon to rule on the legality of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (“Aadhaar Act”).

A retired judge of the Karnataka High Court petitioned the Supreme Court by way of a petition challenging the scheme. In its final judgment titled KS Puttuswamy v Union of India (‘the Aadhaar judgment’), the Court upheld substantial portions of the act and substantially saved its heart and soul, while striking down certain provisions that had the possibility of abuse.

The Court sought to undertake a balancing act that would protect the most fundamental aspects of a person’s privacy while permitting the use of the Aadhaar scheme for the welfare of the general population. The jury is out on the question as to whether the system of direct benefits through the Aadhaar scheme will revolutionise India’s fiscal environment. However, the validity of the Aadhaar Act was not the only issue decided by the Court.

During the course of the long litigation, the Court also ruled on the very right of privacy that had been taken for granted by the citizens of the country. Perhaps the abiding legacy of the judgment will be this right to privacy rather than the actual issue about the validity of the Aadhaar scheme as decided by the Court.

After Independence, the country set about adopting a socialist economic system. One of the aims of the so-called welfare state was the grant of subsidies to the poor, either in the form of food through the public distribution system (PDS) or through other subsidies in goods such as fertilisers for farmers or kerosene for consumers. The expenditure on subsidies soared over the years. Unfortunately, the intended beneficiaries did not end up receiving the actual benefits, which were lost through a leaky and corrupt distribution system.

Even after economic liberalisation, the situation did not improve substantially. The system was clearly broken and had to be fixed. The only question was how. One suggestion involved transferring the cash equivalent of the subsidies directly to the beneficiaries, a direct benefit transfer (DBT) scheme. The belief was that such a system would exclude the corrupt bureaucratic interface as well as the middlemen in the system. Such a scheme required the government to have a database of all the persons who were entitled to benefits.

The integrity of such a database was crucial for any DBT scheme to avoid excluding those who were entitled to such a benefit while eliminating duplication of beneficiaries.

Though there were several databases in existence, such as voter ID cards and ration cards, the data contained in them was thought to be flawed and unreliable. It was with this need of creating a reliable database that the Government of India authorized the creation of the Unique Identification Authority of India (UIDAI). The mission for the UIDAI was clear – it had to create a database whose primary task would be to validate the identity of any person. In other words, was a person who was claiming to be Ms X indeed Ms X?

For this purpose, the idea was to record biometric data that was unique to all individuals, ie, fingerprints and iris scans. This information would be stored in a central database. Every time the identity of any person was to be verified, their fingerprints and/or iris scans would be taken and transmitted to the central database where they would be matched with the records on file. If the records matched, the database would send a message saying that the person was indeed Ms X (or not, in case the records did not match). The only information that would be received would be a simple yes/no, ie, whether the person was or was not who they were claiming to be. This system had several ostensible advantages.

Other than facilitating the easy transfer of subsidies, another purported rationale of the Aadhaar scheme was the fact that it would provide identity documents to a large number of residents who did not have them. This was particularly necessary for a country where identity documents were asked for in virtually any interaction with the government. These documents were often unavailable to those citizens who needed government assistance the most.

For instance, the large migrant population was heavily dependent on government subsidies but was unlikely to have the identity papers that demanded proof of residence. Aadhaar was supposed to be an identity document that would permit such migrants to receive subsidies regardless of where they moved to in the country.

Despite the purported benefits of the Aadhaar scheme, there was one glaring problem and that related to the concerns about the privacy of the individual. Opponents of Aadhaar were worried not so much about giving biometric information as about how the scheme had been structured. The Aadhaar scheme required the collection of biometric information, its storage on a central database and its usage by State as well as private entities. There were concerns about each of these three stages.

The collection of these details was outsourced to private parties and hence there was a concern as to the safety of the data during the process of collection. Once the data was collected, it would be stored on central servers and there was always the fear of hackers accessing the biometric information of a huge number of people. However, it was the fear of how the data could be misused once it had been gathered that was the greatest concern.

The Aadhaar scheme envisaged that every time an individual’s identity was to be authenticated, her biometrics would be scanned and transmitted to the central database where they would be matched with the records stored on it. The server would then transmit the information about whether the identity had been verified back to the requesting authority. It was feared that there could be a leakage of information during this process.

There was also a very grave fear that the use of such a database would enable the State to create a profile of its citizens in relation to the services availed by them. Over a period of time, the State would get to know the behaviour of the citizens, which data could be used to suppress dissent and to influence the political interactions of the citizen with the government. Collation of the immense amount of information about an individual would permit the creation of a “surveillance state” where Big Brother would always know what a citizen was doing.

Excerpted with permission from Fifteen Judgments: Cases that Shaped India’s Financial Landscape, Saurabh Kirpal, Penguin.