Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
From UPSC perspective, the following things are important:
Prelims level: Read the attached story
Mains level: The newscard talks about how Aadhar can help in achieving targets of financial inclusion through AEPS, biometric system, etc.
Different public interest litigations (PILs) against Aadhar
- The PILs filed before the SC against compulsory linking of Aadhaar to bank accounts raise issues about the right to privacy, concerns of being treated on par with money launderers, and the right to be not deprived of property as a result of blocking of bank accounts
Level of financial inclusion
- Nearly one in three Indians do not have access to a bank account and one in seven do not have access to credit
- These ratios would be much poorer for the eastern and north-eastern parts of the country
Financial inclusion through business correspondents (BCs)
- Guidelines for establishing BCs were introduced by the RBI in 2006 to ensure availability of banking services at an affordable cost
- How it works: A company, acting as a business correspondent for a bank, appoints agents to run the brick and mortar customer touch points
- Initially launched with a biometric-based authentication system managed by individual banks, these agents have aggressively shifted to Aadhaar-enabled payment system (AEPS) to provide a network for delivery of banking services in far- flung areas
- An agent runs a low-cost operation which opens “small” savings accounts, provides deposit and withdrawal services and offers products like micro insurance and Atal Pension Yojana
- Central and state government direct benefit transfers are also routed through these accounts
- RBI data: According to the RBI Annual Report, 646,000 agents carried out 1,159 million transactions worth Rs2.65 trillion in FY 2016-17
- Availability of small savings accounts in far-flung areas has enabled a large number of poor Indians to experience formal banking systems for the first time in their lives
How can the Aadhar system help?
- A centralized database and authentication system, like Aadhaar, is better than a distributed system where each bank builds and maintains the biometric database of its own customers
- Collecting the biometric information of a customer is a long and expensive process
- The high entry costs associated with a distributed system make moving one’s account between banks a cumbersome process
- A Centralized system, like AEPS, makes it easy for a new financial services provider to plug in and launch its services
Should it be mandatory to link Aadhaar to bank accounts?
- A mandatory linkage would build economies of scale and improve the network of AEPS enabled point of sale devices and biometric ATMs
- This would benefit not only the users of small accounts but also the richer classes with multiple PINs for credit and debit cards