Ordinance to allow voluntary use of Aadhaar to rekindle privacy debate

While the Cabinet passing an Ordinance to allow the voluntary use of Aadhaar as a Know Your Customer (KYC) mechanism is being welcomed by fintech companies and start-ups, it is set to stoke the debate on privacy once more.

The “voluntary” nature of Aadhaar has been a contentious issue, with most industry players like telecom companies, banks and small businesses creating conditions more conducive for Aadhaar to be used as a proof of identification. For instance, telecom service providers have often been known to process new connections faster when Aadhaar is submitted as the ID proof versus other documents like a passport or driving license.

The question of how much data these companies were able to access based on an individual’s Aadhaar was also hotly debated until last year, when the Supreme Court said that private companies can no longer insist on Aadhaar for identification purposes.However, fintech companies and start-ups that use electronic KYC had been left in the lurch after the Supreme Court struck down Section 57 of the Aadhaar Act last year, disallowing private companies from insisting on the 12-digit identity number.

“The Ordinance to allow individuals to voluntarily use Aadhaar for completing e-KYC formalities will boost secured digital transactions across the country. 

Implementation of voluntary e-KYC will be a win-win situation for all stakeholders — banks and financial institutions, customers, and the government. Backing it up with robust data protection will hold the key to unlock the bright future of financial sector in India,” said Fidelity National Information Services Managing director-India Ramaswamy Venkatachalam.

The changes approved by the Ordinance are the same as those contained in a Bill proposed in January, which suggested an amendment in the Telegraph Act and the Prevention of Money Laundering Act to allow telecom companies, banks and financial institutions to verify the identity of their clients by authentication or offline verification of Aadhaar, or passport, or any other documents notified by the central government.

However, the manner in which the Ordinance was brought has come under some criticism. According to a legal expert who did not wish to be named, the process followed by the government has gone against convention. “Major decisions are not usually taken so close to the election. Because the Bill could not be taken to Rajya Sabha after passing in Lok Sabha, they have introduced it as an Ordinance,” he said.

Because the changes have been introduced as an Ordinance, it will have to be reconsidered again. “This (Ordinance) does not mean that private companies have been allowed to voluntarily use Aadhaar forever. This is only valid for the next six months, after which it needs to be brought before the Parliament or extended for the next six months,” said Sarvjeet Singh, Executive Director at the Centre for Communication Governance at National Law University Delhi.

Experts have also not ruled out the possibility of the Ordinance being challenged in the coming days.

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