Ministries fight over Aadhaar linkage to small savings schemes

Govt's attempts at achieving greater financial clarity seem to have created rift within ministries

The Narendra Modi-led government’s attempts at achieving greater financial clarity seem to have created rift within ministries. The differences of opinion have come to the fore with the law ministry’s rejection of a finance ministry proposal to link small savings schemes with Aadhaar numbers. 

The Department of Economic Affairs under the finance ministry had first proposed the idea of linking small savings schemes such as the National Savings Certificate, Public Provident Fund, Senior Citizen Savings Scheme and Kisan Vikas Patra to the law ministry, weeks before the November 8 demonetisation decision. According to the finance ministry, with deposits under Rs 50,000 in these schemes not requiring the depositor to divulge PAN or other corroborative details, the schemes were becoming impossible to track funneling of black money into the formal banking system. 

 

However, the law ministry sent a communication on October 4 discarding the suggestion to link the Rs 2 lakh crore worth of schemes, saying these fall beyond the scope of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act 2016. 

Section 7 of the Aadhaar Act allows the central government to prescribe Aadhaar authentication for the receipt of subsidies, benefits and services in cases where expenditures are incurred from the Consolidated Fund of India. Even the preamble of the Act refers to the administration and delivery of these schemes alone. According to the law ministry communication, as small savings schemes were facilitated through the Public Account Fund of India, they were incapable of such Aadhaar authentication. 

According to the finance ministry, the authentication proposal was under the ambit of the Aadhaar regime as the expenses in promoting the initiatives had come out of the Consolidated Fund. Relying on this interpretation, the finance ministry again approached the law ministry, after the implementation of demonetisation, requesting it to reconsider the matter. 

The law ministry again rejected the finance ministry’s proposal on December 14. In support of its earlier conclusions, the ministry highlighted portions of the National Small Savings Fund (Custody & Investment) Rules 2001, under which such schemes were to be administered solely and exclusively through the Public Fund. Citing relevant judgments, the law ministry reiterated its position that the administrative powers of the executive could only be exercised within the confines of governing legislation. 

“If one wants to extend the scope of Aadhaar and link it to small savings accounts, the legislature will have to first amend the Aadhaar Act. In case the objective is to bring it at par with the social security system in the US, then the entire framework has to first be calibrated for this purpose before such a step can be undertaken,” says Prem Rajani, managing partner, Rajani Associates. 

According to Rajani, it is equally important to understand the object and purpose of linking the Aadhaar system to deposits and savings. Hasty approaches that intrude on private rights of citizens in an unregulated matter might create apprehensions of a big brother regime and dent public confidence in this fast-evolving environment of financial administration.