February 2017 Law Review

Konark Sikka

Starting from this month, the South Asia Program will review the major laws, regulations, ordinances and notifications passed by the government of India. In February, there were a flurry of notifications issued by government ministries related to Aadhaar cards and a continued push towards both the digitization of India’s economy as well as demonetization. Here’s a closer look at these policies.


Federal Ministries Announce Aadhaar Cards as Mandatory for Availing Benefits and Subsidies

Various ministries of the federal government announced in February that for people to avail government benefits and subsidies from their ministries, they would be required to hold an Aadhaar card (and Unique ID). The subsidies affected by these announcements include food grain and horticultural subsidies, crop insurance schemes and benefits offered under Federal government programs such as the National Rural Livelihood Mission and National Career Services.

The various issued notifications allow for a period of time until which beneficiaries can apply for the Aadhar card before being barred from availing their subsidies and benefits. In the interim, in the absence of an Aadhar card, beneficiaries can use their application slip for an Aadhaar card or continue using other identification documents to avail their subsidies. The duration until which beneficiaries can wait before mandatorily requiring an Aadhar card differs from scheme to scheme. All of these notifications have been issued citing the Aadhaar (Targeted Delivery of Financial and other Subsidies, benefits and services) Act of 2016.

The biggest impact will be on people who rely on food subsidies. To be more specific, any government benefits or subsidies related to food grains under the National Food Security Act of 2013 will now require the beneficiary to hold an Aadhaar card. An estimated 67% of India’s population relies on the food subsidies and benefits available for cereals under the National Food Security Act of 2013.

The passage of these ministry notifications go against the Supreme Court’s ruling in 2015 on Aadhaar. The Supreme Court reaffirmed an earlier ruling from 2013, stating that Aadhaar can only be a voluntary decision of the individual and that as long as a person is eligible to avail benefits and subsidies, the government cannot deny them those benefits and subsidies because on the basis that they do not have an Aadhaar card. Despite this ruling, the federal government decided to push through with these moves.

Furthermore, the manner in which the Aadhaar Act was passed through the Parliament was contentious as well. The Aadhaar Bill would be introduced as a money bill in the Lok Sabha. Classifying it as a money bill meant that the Rajya Sabha would not be able to vote on it, merely make suggestions and that passage through the Lok Sabha itself would turn the bill into an Act. There was an outcry over classifying the bill as a money bill and the matter was taken to the Supreme Court, which is currently still holding hearings over the matter.

This is also not something new. The federal government has previously pushed for the same moves numerous times after the Supreme Court ruling. For instance, holding an Aadhaar card being mandatory to avail the cooking gas subsidy. Furthermore, the federal government has also been pushing bank accounts to be linked to Aadhaar cards, regardless of whether or not an individual takes government benefits or subsidies.

The main argument that the federal government makes, and indeed, the reason why the previous Indian National Congress (and allies) government kickstarted the Aadhaar system, was to facilitate direct and transparent delivery of benefits and subsidies to the Indian citizens that required them. The system of payments making their way to people’s bank accounts directly was pursued with the goal of preventing fraud and corruption that otherwise took place and the World Bank too has praised the Aadhaar system for this reason.

According to The Economist, Nandan Nilekani, the creator of the Aadhaar system, argues that trust and verifiability are important for any business. Hence, the Aadhaar system’s positives will not only be limited to the government, but spread to the private business sector too as with an Aadhaar backed identity, banks will be more confident in giving out loans to citizens and businesses, both big and small, more secure in knowing who they’re working with.

In fact, given the size of India’s population, something like the Aadhaar system might seem like the easiest and most effective way to organize the payments of subsidies and benefits while keeping a check on administrative costs as well.

However, it is the sheer size of the Aadhar database wherein its issues lie as well. For starters, at least for now, the Aadhar system doesn’t have the strongest track records when it comes to the deliverance of subsidies and benefits. For instance, according to a report in the Economic and Political Weekly based on data released by the Unique Identification Authority of India (UIDAI) itself, the probability of the identities of two different people matching was 1/112 for India’s 1.3 billion population. Furthermore, a survey conducted by Andhra Pradesh’s government itself saw 48% respondents citing Aadhaar issues as a reason for them missing out on subsidies and benefits. Yet, the government wants to force through Aadhaar cards for every Indian citizen.   

The other issue with binding so much information of a citizen, including their bank accounts, to their Aadhaar card is if another country were to hack the Aadhaar database. India deals with frequent cyber attacks from China and Pakistan. Hacking the Aadhaar database would be an easy way for other countries to create disruption within India. Even Google and Apple have been wary about taking to Aadhaar due to security concerns.

There is also the issue of the legal framework and privacy when it comes to Aadhaar cards. While there are safeguards in place in the Aadhaar Act itself, critics have argued that they do not go as far as they should to ensure the protection of privacy of citizens. More specifically, critics have expressed concern about the lack of proper informed consent and wording of the Aadhaar Act allowing for the possible sharing of Aadhaar data with law enforcement.


Payment of Wages (Amendment) Act, 2017

The Act amends the Payment of Wages Act of 1936 to include the possibility of employers making payments via credit or cheque to their employees without requiring the permission of the employees themselves. However, the Act also allows both the Federal and State governments to decide on industries (and establishments) that they might feel need to only use cheques or credit and not cash a method of payment. This move is another continuation of Prime Minister Narendra Modi’s drive to reduce the usage of cash in the Indian economy.

During the debates in the Lok Sabha, opponents of the proposal cited many concerns, with most arguments against the proposal being related to the lack of banking infrastructure in rural India. There were also concerns over workers with no bank accounts being left in a lurch. Overlooking this before the introduction of the Bill was also criticized by opponents in the Lok Sabha.

There were also arguments that the Bill was good for the organized sector, but disastrous for the unorganized sector where workers usually work on a temporary basis, making the collection and depositing of cheques an arduous task for someone who might work on a day to day basis. According to the International Labour Organization, as of 2012, 82.2% of India’s workforce participated in the unorganized sector.

At the same time, it is likely that given both the Federal and State governments have the ability under the Act to decide on which industries (and establishments) should and shouldn’t use cash, that governments would be wary in forcing any mandatory method of payment upon industries that cannot practically do so.

Labor Minister Bandaru Dattatreya argued that, contrary to his opponents concerns, the Bill would ensure timely and complete payments to workers while at the same time increasing the transparency of the process as it is easier for employers to short payments based in cash.  


The Specified Bank Notes (Cessation of Liabilities) Act, 2017

The Act replaces the previous demonetization ordinance, instituting in place a formal law. The Rs.500 and Rs.1,000 notes are now completely discontinued and people who hold more than 10 notes of this kind (25 if the purpose of holding them is for research or numismatic reasons), will be fined “Rs.10,000 or five times the cash held”. People will no longer be able to deposit, hold, transfer or receive these discontinued notes.

The exception is people who were out of India between November 9 and December 31, 2016. The people who were out of the country between the given dates will nevertheless only be allowed to deposit these notes after making statements or declarations to the RBI, by the date of March 31.

The aim of the Act is to deliver finality to the move to demonetize the Rs.500 and Rs.1,000 notes. Finance Minister Arun Jaitley speaking in the Lok Sabha stated “We must move to a greater digital economy and therefore free the economy from these vices....you cannot allow a parallel currency to operate in the market. So holding the currency beyond a specified limit for research and numismatic purposes will be an offence. This is the rationale behind this bill”.