One of the most difficult aspects of establishing a pension scheme for hundreds of millions of the poorest segments of India’s society, is identifying who they are absolutely accurately over a period of a lifetime. Many of the potential participants in the NPS are illiterate, and there may even be no reliable records of their existence. The EPFO schemes have a recorded number of 40 million members but an actual number closer to 15m with the difference due primarily to an inability to track workers across multiple employers during their working lifetime. Achieving the NPS vision is predicated on utilising the latest technology, both in investment products and in the infrastructure required to deliver the products. Ajay Shah pointed out that unsophisticated consumers need sophisticated finance, but they also need extremely sophisticated mechanisms to deliver that finance in a mass market high volume, low cost environment.
India is embarking on a project that will have the most profound impact in the long term, on the nature of India’s society, and will also be a key cornerstone for the widespread dissemination of the NPS to participants in the most remote areas of India. This is the establishment and provision of a unique number for every single individual in India, over 1 billion identities that will be able to be verified in real time. India is fortunate in having a vibrant and world class IT industry, and it has also been fortunate in gaining the services of Nandan Nilekani, to be Chairman of the Unique Identification Authority of India (UIDAI), established to develop and deliver the technology capable of doing this. Nilekani was a co-founder in 1981 of Infosys Technologies, now a world class IT company and one of India’s brightest gems.
As Nilekani pointed out at the IIEF Pension Policy Conference, the challenge when delivering public services, is to be able to verify the identity of a person at the point of delivery. The intention of the UIDAI, is to establish a single database with one number to provide a unique identity (UID) and a very basic record for every individual in India. According to Nilekani, this may be just comprise a name, date of birth, address and the details of the parents. This will be established through using a unique biometric package which is currently being researched. Nilekani expects this to be finger prints with the additional possibility of using iris scans if they can be shown to be effective and unique. But as he points out, establishing unique identification data and hence a unique number is not sufficient. For the system to be effective, it must also be established that there are no duplicates. This process of “de-duplication” is a significant computational issue. If there were 500 million records and an extra 100 million were to be added, they would first have to be compared with all the existing 500 million and with each other before being recognized as not a duplicate and hence a single as well as being a unique identifier for an individual.
Once the technology of establishing the unique biometric data has been established, the issue is how it can then be applied in a cost effective manner across 1 billion people. Clearly, it cannot happen at once. The strategy that Nilekani outlines is based on using a variety of registrars who would be given the technology e.g. of taking fingerprints electronically and transmitting the information via mobile phones to a central database. These registrars would include banks, insurance companies and the usual financial intermediaries, so that existing users of such services would be easily able to be tested and assigned a unique number. But the technology of utilizing mobile phones with biometric assessment can be utilised by any agent involved in transactions with an individual, so it could encompass petrol stations etc. This then enables micro-payments of small amounts for an individual’s pension provisions, to be incorporated alongside transactions associated with any day-to-day activities that utilize cash payments. The issue as Nilekani says, is to be able to combine the scale of coverage of mobile phones in Indian, with the prudential and regulatory aspects of finance. The UID provides an authentification program for service providers and should thereby continuously reduce transaction costs: “You just need a cell phone and say a fingerprint reader to get authenticated on line and then complete a financial transaction.”
The only role of the UID is the establishment if identity and any two people by mutual consent, can establish each other’s identity through such a system. Whilst the immediate application maybe the establishment of micro-pensions for the poor through the NPS, the ramifications of such a technology are likely to be much more far reaching.