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More than a billion Indian residents now have a biometric digital identity: Aadhaar. Its use across various sectors is increasing rapidly. The State of Aadhaar Report 2016-17 aims to provide a comprehensive overview of Aadhaar’s technological and operational architecture, legal and governance framework, uses in financial inclusion and social protection, and emerging applications in other sectors. Given the large scale and complicated nature of Aadhaar and its uses, the purpose of this report is to provide a holistic picture of the Aadhaar landscape over the last decade, to encourage evidence-informed discourse and decision making in the public and private sectors, and to spur future policy-relevant research projects.
Rains have come early this year in the Karauli district, located in the state of Rajasthan in north India and sandwiched between the Taj Mahal, a famous tiger reserve, and the palaces of Jaipur. Kheri, a medium-sized village of nearly 500 households and a smorgasbord of castes and religions, is getting ready for a good harvest season. Tractors go up and down the narrow unpaved roads; the villagers are up early tending their fields sowing bajra, the coarse grain that is the staple of much of this region; and bullocks block the path sitting in the pools of mud that the rains have helpfully created for them. There is an unchanging nature to this scene, much like it has been for centuries past.
But change has come to Kheri, especially over the last half a decade. It has become the digital frontier where the new India meets the old. I am here to see first-hand how a large program of the Government of Rajasthan, known as Bhamashah, is being implemented on the ground. The program is registering all family members under a single identity document known as the “Bhamashah Card,” linking it to lists of beneficiaries in over one hundred social programs such as food rations, old age and widow pensions, scholarships, etc. Having the card also means that each below poverty line (BPL) family gets a one-time enrolment grant of 2000 rupees (around $30) deposited directly into their bank account and health insurance plan where they can access both public and private healthcare providers.
The card also links each individual member’s Aadhaar—India’s biometric id number—to the Bhamashah database eliminating false or duplicate registrations from the subsidy delivery system. Most importantly, it mandates that the card is registered under the name of the woman, effectively making her the head of the household. In a society famous for its patriarchy, this is nothing short of shaking up the very foundations of gender relations that has existed over thousands of years.
Bhamashah card of Asha Devi, Kheri Village, Karauli District, Rajasthan
Our survey team moves through the village identifying houses to randomly administer a questionnaire that we have designed with our local partners, MicroSave. As we go through the questions, crowds gather around, curious of what’s happening. The village headman gets word that a “team” from Delhi is here to know about Bhamashah, leading to some interesting discussion on why we are here and what our (ulterior) motives are. The conversations are generally good-natured and end with an offer—or rather insistence—of having tea at his house before we leave.
The villagers, of course, have their views. They are generally satisfied about the enrolment process and told us that they got the card made because “everyone else was getting it.” Everyone has an Aadhaar number, all women we spoke to had bank accounts, and most had linked the two. But getting food rations seems to be the main issue—many said that they did not know why they were not getting it regularly. Our team conducted several focus group discussions separately with the villagers and the local administration. We hope to get a clearer picture of why this is happening and how the issue can be resolved.
Old Age Pension Scheme Beneficiary, Mahendwara Village, Karauli District, Rajasthan
Overall, it seemed that Karauli is now firmly in the digital ecosystem that India is building with Aadhaar, financial inclusion, and the mobile revolution—the so-called ‘JAM’ trinity. But it still has to overcome significant challenges of poverty and inequality. In a state that is similar in size and population to Germany, it is no small achievement to take on the ambitious task of providing each family with a unique ID and deliver it within a short span of three years.
The possibilities of 80 million people in Rajasthan participating in digital governance is immense. But as an older woman who did not know her own age told us, “making peoples’ lives better is more than delivering just a card.”
Today, June 30, marks six months from the day Indians had to change their old 500 and 1000 rupee notes following the “demonetization shock” announced by the government. The turmoil in the economy has since calmed to a large extent. In the past six months, the government also launched a concerted effort to wean Indians away from cash as the preferred method of payment for transactions. And within a short period of time, “digital” and “cashless” had become common parlance. It seemed as if India was poised for a complete restructuring of its economy leaping into the digital future. But did that happen?
Our analysis of recently released data from the Reserve Bank of India shows that the initial euphoria has died down, but digital payments are here to stay. Digital financial inclusion was only expressed as a goal of the demonetization policy well after it was originally announced—yet the Indian government adroitly exploited this opportunity to develop a more robust digital ecosystem. The data, however, says something very interesting: Indians are moving to digital transactions, but at a pace of their own choosing. Cash is still the king—or so it seems.
Figure 1. ATM transactions in India by value and volume, Aug. 2016 - Apr. 2017
ATM transactions are a strong indicator for reliance on cash. With restrictions to cash in the economy in November and December, the volume and value of ATM transactions dramatically fell. However, once cash was restored in the economy, ATM transactions achieved close to pre-demonetization levels.
As expected, transactions using mobile banking and point-of-sale (POS) that experienced sharp increases during the demonetization phase also did not sustain after December. While the volume and value of mobile banking and POS transactions have not fallen to pre-demonetization levels, given that they were on a steady growth trajectory pre-demonetization, India may have simply regressed to the previous trend. (The volume of transactions for March and April can be misleading because at the time of financial year closure, a higher volume of transactions generally take place.)
Figure 2. Mobile banking and POS transactions in India by value and volume, Aug. 2016 - Apr. 2017
The quick reversion to business-as-usual signals that consumers are not ready to give up cash just yet. There are several reasons for this: 1) digital transactions have explicit overhead costs; 2) a neighborhood grocery store in India would most likely charge extra for the same product if it is paid by any non-cash instrument; 3) India also still has a dominant informal sector; and 4) reliance on cash is inevitable for economic activities to remain outside the tax net.
However, cash is also implicitly expensive—lost tax revenue due to under-reported income, risk of counterfeit and theft, and access to cash is far more time-consuming. But such costs are often not internalized when comparing cash to digital transactions. Thus, a behavioral shift to digital finance cannot be coerced, but requires gradual improvements in financial literacy and formalization of the economy.
The Indian government, however, has taken an atypical approach to transition into a digital financial economy. Most developed economies transitioned to a cash-lite economy due to market-driven consequences. The Indian government, on the other hand, has taken an active part in incentivizing citizens to shift towards digital finance. While demonetization may not have been successful in this vein, the Modi government capitalized it to launch several novel digital payment instruments, such as the BHIM application that utilizes the Unified Payments Interface for instant bank transfers, and AadhaarPay that connects the Aadhaar-enabled biometric identification as an authentication process for mobile banking.
With several digital financial instruments in the market, the consumer now has more choice than ever. Demonetization forced consumers to hastily adapt to non-cash instruments, proving the digital financial ecosystem of India is in good health. With careful attention to crafting the right incentives, the Indian government could play a successful role in furthering India’s journey towards true digital financial inclusion.
The US agricultural sector is critical to global food security. American farmers account for 25 percent of all corn and wheat exported globally, and the US is the largest foreign aid donor providing assistance to, among other things, improve food production in many developing countries.
Yet, at the same time, many of the US’s agricultural policies can negatively impact people in the rest of the world. In a new book entitled Global Agriculture and the American Farmer: Opportunities for US Leadership, CGD visiting fellow Kim Elliott argues for practical policy reforms in three areas that are particularly damaging to developing countries: food aid, biofuel subsidies, and antibiotic resistance in livestock.
As the US Congress works through a major new farm bill, Elliott joins the CGD Podcast to discuss how the US can reform agricultural policy to achieve better outcomes.
“The Trump budget actually zeroes out the main food aid program,” Elliott tells me in the podcast. “So that seems to me to open up a space for Congress to say, ‘Well, we recognize there are some inefficiencies. But let’s fix it, not end it.”
Click below to hear some of Elliott’s recommendations, and check out the full podcast at the top of this page.
A year ago, I requested comments on a draft manuscript about corruption. Last week, we launched the resulting book: Results Not Receipts: Counting the Right Things in Aid and Corruption. I think the text was considerably improved by the comments process (and I hope the commenters agree). So I’m hoping the discussion can continue even though the book is now out.
Last week, Frank Vogl, a founder of Transparency International and long-time advocate and leader in the global fight against corruption, emailed me with a set of comments on the resulting book before the launch, and then raised many of his concerns during the book launch event. In the spirit of an ongoing discussion, I asked him if I could publish his written comments and he was kind enough to agree. They follow below.
Results Not Receipts: Counting the Right Things in Aid and Corruption is an excellent starting point for an important and overdue discussion.
Almost exactly 20 years ago (September 1997) ministers attending the World Bank-IMF joint “Development Committee voiced strong support in their communiqué for major actions by multilateral and bilateral development agencies, as well as by the IMF to promote governance and counter corruption.
Charles Kenny and CGD have gone far further than the reports mentioned above and challenged the core approaches of aid agencies in this area.
Since that time there have been a number of reviews about the ways in which the international community and official public institutions have implemented the Development Committee’s mandate. In September 2007, an independent panel chaired by Paul Volcker issued a report finding fault with the World Bank’s own integrity vice presidency. In 2008, the Bank’s Independent Evaluation Group issued a major report that found far-reaching problems in the ways in which the Bank had sought to counter corruption in its operations. A further IEG critical report was published in 2011.
But Charles Kenny and CGD have gone far further than the reports mentioned above and challenged the core approaches of aid agencies in this area. Millions of very poor people in many countries are what I call ‘double-victims:’ first they suffer because of corruption; second, they suffer because efforts by aid agencies to help them too often do no good and sometimes do harm. As Kenny asserts: “It is time for donor agencies to fundamentally rethink their anticorruption approaches.”
Results do matter and he argues that it is often the case that aid agencies spend so much resources—staff and cash—in bending over backwards to ensure that not a single cent of aid cash flows into corrupt hands that their impact on poverty alleviation is far less than it could be.
But the new book is insufficiently clear in articulating effective remedies. It falls short in fully explaining why the core approaches of the aid agencies are just wrong. In addition to Kenny’s points, the facts are that staff incentives at aid agencies are far greater in terms of shoveling out the cash, than waving red flags because of feared corruption; that aid agencies shy away from meaningful confrontations with governments over grand corruption and wrongly operate, as a result, as if widespread petty corruption is quite separate from grand corruption; and, the aid agencies are extremely reluctant to listen to and work with civil society in the most effective ways.
Kenny devotes considerable space in the book to a discussion of how best to measure corruption. To a degree, like so many others, he overstates the purposes and significance of Transparency International’s Corruption perceptions Index, which is a poll of 13 different polls, makes no claim to be more than a snapshot in time based on surveys. The CPI was originally designed to strengthen public awareness of the pervasiveness of corruption and that continues to be its prime objective.
In discussing aspects of measuring corruption, the new book fails to explore issues of income and wealth inequality. The 2013 report by the African Progress Panel, for example, researched why extreme poverty is so widespread in most of the 20 sub-Saharan African countries endowed with extractive natural resources. The analysis pointed to a good deal of waste and inefficiency, but also to corruption. Studies like this provide us with in-depth understanding of the impact and scale of corruption.
The more we anyalze public sector projects and programs, looking for funding discrepancies, searching for opacity in contracting, seeking weaknesses in project implementation, so more detailed pictures of the scale and impact of corruption emerge. Those most able to purusue such analysis are locally-based non-governmental organizations. Today, there are hundreds of such NGOs across the developing world. They have precise knowledge. They have the skills to engage citizens. They have demonstrated results, as many TI national chapters can attest and is evident by looking at the evaluations of scores of small projects funded and advised by the Partnership for Transparency Fund.
Aid agencies provide relatively small funding to NGOs—and it is decreasing. They rarely listen seriously to what they have to say in so-called “civil society consultations.” Many aid agencies are reluctant to agree to substantive monitoring of their projects by NGOs (this is a positive example).
The first sentence of this important new book in its Preface states: “Governance and corruption remain at the heart of discussion around global development.”
That may have been true a few years ago, but I do not think it is the case today. Part of the reason may be the recognition within aid agencies that curbing corruption is difficult, it does not yield results swiftly and it measurement is complicated. Part of the reason is that there has not been enough high-profile discussion of the inadequacies of the approaches that aid agencies deploy.
So Kenny’s book should be seen as a starting point for what needs to become a robust discussion. In the early 1990s, a few of us waged a campaign to convince the aid agencies to recognize that corruption is a problem in development and to ensure that curbing corruption becomes a meaningful priority for these agencies. Now, it is time to have a new and substantive set of initiatives—and I hope the aid agencies will be constructive partners with CGD and others—to look at all possible approaches to addressing the needs of the victims, especially those who live in acute poverty, so that their basic human rights are secured and that they can live in dignity.
I agree with much of what Frank says. And where I disagree, it is worth noting our comparative credentials on the topic. But here a few reactions:
There certainly are a lot of incentives at donor agencies to “shovel out the cash”—I wonder if the receipts-monitoring process is in part a response to that incentive. While not particularly effective at reducing corruption, receipts monitoring precisely measures the shoveling. Results measurement (and in particular payment on results) is at least a distraction and at worst a positive block to getting cash out of the door.
I do think inequality is linked to corruption—in particular in the broad sense of systems being stacked against the average person. Inequality is about equal between rich countries and poor, and I take this as evidence corruption in this broad sense is not simply a “problem of poor countries.” That even though straightforward bribery is far more common in poor countries than rich ones.
I’d say that aid agencies are very focused on corruption, but very narrowly focused. They are spending a lot on financial and procurement oversight of their own projects and not nearly enough on tackling corruption at the country level.
Frank’s helpful and deeply informed reactions certainly demonstrate the benefit of an ongoing discussion. I’d be very grateful for any more reactions to the book, by email or below. And many thanks in advance!
The US agricultural sector is critical to global food security, but many of the policies that currently govern it negatively impact people around the world. In a new book, CGD visiting fellow Kim Elliott argues for practical policy reforms in three areas that are particularly damaging to developing countries: food aid, biofuel subsidies, and antibiotic resistance in livestock. As the US Congress works through a major new farm bill, Elliott joins the CGD Podcast to discuss how the US can reform agricultural policy to achieve better outcomes.
What impact does corruption have on development, and what’s the best way to stamp it out? In a new book called Results, Not Receipts, CGD senior fellow Charles Kenny offers a way to strengthen the case for aid and reduce corruption at the same time: focus on outcomes, rather than inputs.
What impact does corruption have on development, and what’s the best way to stamp it out? Some in the media would have you believe that large amounts of public money are being pocketed by corrupt officials, and that the only way to stop it is to cut foreign aid budgets. Meanwhile, aid agencies and others argue that foreign aid is necessary to save lives. How do we square these?
In a new book called Results, Not Receipts: Counting the Right Things in Aid and Corruption, CGD senior fellow Charles Kenny offers a way to strengthen the case for aid and reduce corruption at the same time: focus on outcomes, rather than inputs.
“If you get a road built to quality . . . and you’ve ended up with a price that seems right for the cost of building that road, there’s no money left over there to fuel corruption,” Kenny explains in this week’s podcast. On the other hand, he says, if you don’t monitor the outcome of your project, it becomes very easy for contractors to cut corners.
Focusing on outcomes also helps donors and agencies demonstrate impact. “When you focus very heavily on receipts, all you have to show your voter is a bunch of paper,” Kenny tells me. “I want to see the healthy kid, I want to see the kid who’s been educated. . . . If we can deliver that, I think we make the case for aid much stronger.”