Athena In News

India Inc. Braces for Sixfold Jump in Costs as Database Use Ends

October 06, 2018

Indian telecom companies and banks are bracing for a sixfold jump in costs to verify antecedents of its customers after the use of a biometric database of residents was barred for all but the government.

Companies were using the database to accelerate the process of opening bank accounts, disbursing loans and acquiring mobile phone customers. India’s top court on Sept. 26 ruled that the digital-identity program, known as Aadhaar, is to be only used by the state to identify beneficiaries of welfare programs and disburse subsidies.

That’s bad news for companies such as billionaire Mukesh Ambani’s startup mobile-phone company Reliance Jio Infocomm Ltd., which quickly added subscribers by seeking a customer’s thumb impression on an Internet connected device, which within seconds verified the client’s personal details. That did away with the need to manually verify the client’s address.

Telecom companies will revert to paper-based activation, which costs as much as 150 rupees ($2) per activation, as compared with 25 rupees when using Aadhaar, according to Rajan Mathews, director general of the Cellular Operators Association of India. “There would be additional costs of processing, filing, auditing those documents and risk of penalties if there are discrepancies.”

The ban may also delay Prime Minister Narendra Modi’s goal of moving more transactions online and reduce graft.

The Aadhaar program, under which a 12 digit unique number is given to an individual after collecting the residents photograph, fingerprints and iris scan, was under the top court’s scrutiny for six years for allegedly violating citizens’ privacy. Government, telecom companies and banks pushed customers to link the digital identity to bank accounts and phones connections. That is now illegal.

“The judgment makes it abundantly clear that private entities cannot seek Aadhaar details for identity verification purpose,” said Rajat Prakash, managing partner of New Delhi-based law firm Athena Legal.

After the verdict, India’s law minister urged companies not to panic, while national daily Indian Express reported telecom secretary Aruna Sundararajan as saying that her department would consult the law ministry, private players and Aadhaar operator Unique Identification Authority of India to work out alternatives without violating the top court’s ruling.

The top court’s verdict leaves an option for the government to enact a new law to allow companies use the database, said Arun Prabhu, a partner at Mumbai-based law firm Cyril Amarchand Mangaldas. Now that the court has struck down a law that allowed use of the database by companies, “enacting a legislation which satisfies the thresholds, particularly for private bodies, may prove difficult,” Prabhu said.