Aadhaar enrolment costs
What is the true cost of Aadhaar? Answering this question is the first step to performing a cost-benefit analysis on the effectiveness of the project for welfare delivery. There are two broad categories of cost in the Aadhaar program: Enrolment costs and integration costs.
Enrolment cost is the cost incurred in enrolling the entire population into the program, and integration cost is incurred when a program requires Aadhaar as a prerequisite.
This article focuses on enrolment costs. For the sake of perspective, here are advance estimates from various sources:
- Full cost of Aadhaar project is 60,000–70,000 crores, McKinsey Study.
- Full cost of Aadhaar project is 44,240 crores, Economic Times.
- Enrolment cost is 18,000 crores, Economic Times, NDTV.
- Enrolment cost is 17,863.90 crores, RS UQ 4575 on 17.05.2012.
Budgeted enrolment cost
UIDAI reports the cost of the entire program on a yearly basis which includes both enrolment costs and authentication costs. It is difficult to separate out authentication costs, but as long as we don’t double-count it again as part of integration costs, the total cost of ₹9,307.18 crores can be used as an approximate indicator of the enrolment cost incurred by UIDAI.
The Home Ministry ran a parallel project named the National Population Register (NPR). The cost of the NPR project as on August 2016 was ₹4,800 crores. Further, the cost of merging these two databases was ₹951.35 crores as per LS UQ 180 on 21.07.2015.
The 13th Finance Commission recommended a grant of ₹2989.10 crore to state governments for Aadhaar enrolment (page 218, item 12.70) in 10 half-yearly releases during 2010–2015 as an incentive for BPL families to enrol (providing ₹100 per enrolment). While some states like Jharkhand may have credited this sum to the beneficiaries, others like Maharashtra did not and might have used it for other purposes.
Adding these costs together, the fiscal cost for enrolment incurred by government entities is equal to ₹18,047.63 crores. This figure is a lower bound on admitted expenditure due to the inherent difficulty in analysing related budget items spread across central and state budgets.
Enrolment model cost
There are quite a few actors in the enrolment process followed by UIDAI:
- UIDAI
- Registrars (state and central government organisations, banks, or private entities)
- Enrolment agencies
- Enrolment operator.
- Residents who are enrolled in the program
The incurred cost of enrolment that has been discussed so far only covers the admitted budgetary cost of the project by UIDAI and the central government grants. Ideally this should have been sufficient to cover the costs of other actors such as enrolment agencies, operators and residents, but it falls short by a wide margin as explained below:
- The admitted budget basically consists of establishment costs and per enrolment reimbursement, net of deductions.
- Enrolment disbursement is fixed for a successful enrolment (generation of Aadhaar number) at ₹40–50 (references: Jan 2017, May 2017).
- Deductions are also fixed at ₹150–500 for process errors during enrolment (source).
- Enrolment agencies and operators are expected to arrange their own funds for procurement of biometric scanners, setting up enrolment centers which are not covered by the allocated budget. Only Mudhra loans were made available.
- In effect this makes the enrolment model as equivalent to a mix of Lowest Bidder (industry term: L1) with outcome based pricing for enrolment operators, which does not cover their costs.
The side effect of this model is that unaccounted additional costs are pushed down to the enrolling residents.
One clear indicator of the pushing down of the unaccounted costs is the pervasive demand for bribes for enrolment, as the RTI response to Anumeha Yadav in July 2016 indicates.
Further, Minutes of the Meeting of Committee of Secretaries on 23 November 2015 indicates that the government was more than aware of the problem.
An ET report in June 2014 also stated that 80% of enrolment operators were facing financial bankruptcy due to payment disputes with UIDAI, which further suggests that one purpose of the outsourcing model was to externalize costs so that they do not appear on UIDAI’s balance sheet.
Choosing this model may have been deliberate as it allowed UIDAI to report low enrolment cost while pushing it down to other actors. The true cost of enrolment can only be understood by adding these additional unaccounted externalized costs.
These costs can be further sub-divided into confirmed and presumptive. Presumptive costs are called so, as they make use of certain assumptions and are called out clearly, and the reader is free to tweak those assumptions.
Confirmed Costs
Enrolment center and Registrar cost
The base minimum requirement (page 6) for an enrolment center is:
- Equipment: biometric scanners, laptop, printer, web camera, GPS dongle
- A place to keep the above which has a power connection
- Document verifier
- Operators and a supervisor
There has been no publicly available data to estimate the cost of setting up and running an enrolment center by private players, but the recent announcement of the government to set up 15,000 enrolment centers at the cost of ₹2000 crores, allows us to calculate the actual cost retrospectively.
Given that at least 40,000 enrolment centers were operational in April 2017, the setup cost can be capped at ₹2000 crore for setting up these enrolment centers.
Presumptive Costs
Out of pocket cash cost
Costs to the beneficiaries can be modelled as an out of pocket cash cost for the beneficiaries, which includes:
- Bribe demanded for enrolment.
- Cost of travel to the enrolment center.
- Cost of certification by a notary, when original documents are unavailable.
- Payment to intermediaries to arrange the above in a few cases.
The 13th Finance Commission provides an indirect estimate of these costs at ₹100 per enrolment, even without accounting for the widespread demand for bribery. Emphasis added:
12.66 There will be two categories of registrars. One category will comprise banks, insurance companies, income tax departments and passport offices, with whom prospective clients will have a strong incentive to register, because of the benefits that will accrue to them. The identity seekers, in such cases, will largely be above the poverty line and willing to seek a UID and bear its costs.
12.70 We propose that an incentive of Rs. 100 per person (effectively Rs. 400–500 per family) would be adequate for incentivising citizens below the poverty line to register for the UID.
Since most of the beneficiaries were almost never paid this sum by the states, coupled with the demand of rampant bribery, the out of pocket cash cost must be considered as an additional unaccounted cost, equal to ₹100 on an average if we stay with the Finance Commission’s incentive scheme.
Aadhaar numbers generated as on December 2017 is 119.1 crores and at ₹100, the total out of pocket cash cost to the population is ₹11910 crores.
Time cost
It is usual practice in economics to assign a monetary value to time. Hence, if a particular practice saves time for a user, it is assigned a positive monetary value, and if it increases time spent, a negative monetary value is assigned.
(Please note that we are not estimating time saved in future by having a UID, as we are only considering the cost of enrolment)
For a project which has near universal enrolment and not just a subset of the population, time costs can be computed by asking the following questions:
- How much time did the residents spend in the enrolment center?
- What is the cost of their time?
- What is the percentage of non-working population, whose time costs can be discounted?
Enrolment failures too are quite common. For example, as per an RTI response from UIDAI, as on 15 January 2017, out of 126 crore enrolment attempts, there had been 15.08 crore rejections, a rejection rate of almost 11%. Beneficiaries incur time costs for enrolment attempts, and not just for successful attempts.
Another category of enrolment failure, where the resident enrols but the application packet never reaches UIDAI’s servers, has not been considered in this analysis because of the inherent lack of data for even an estimate.
Update costs
The total number of updates as per UIDAI so far are 16.02 crore updates. Often, residents are forced to perform updates since the demographic data captured by enrolment operators have data entry errors which prevent linking their Aadhaar numbers with welfare services. Biometric updates are required when residents age and biometric authentication no longer works reliably — or if biometrics were not captured cleanly in the first place.
Demographic updates can be done without visiting the enrolment centers but biometric updates need a personal visit.
Mandatory biometric updates (such as is required for residents reaching various age thresholds) are not supposed to be charged for, but various reports suggest enrolment operators do so anyway.
Enrolment center running costs
Close to 120 crore Aadhaar numbers have been generated so far and as indicated by the cabinet secretary note above, Aadhar enrolment by itself has not been viable for the operators and rampant bribery demanded from residents is one way, in which attempts were made to recoup these costs, partially.
It is possible to model the unrecovered cost of the enrolment agency as money lost per successful enrolment and even a modest ₹5 per enrolment would amount to ₹595 crores.
Conclusion
The confirmed budgeted cost of Aadhar enrolment is ₹18,047.63 crores, which is at least 2X, the claim made by the government in various forums.
The capital expenditure incurred by the operators for procuring biometric enrolment kits is at least ₹2,000 crores and can be considered as costs incurred by a Special Purpose Vehicle (SPV) created for the explicit purpose for reducing the admitted budgetary costs of the Aadhaar project.
If further presumptive costs such as
- Out of pocket cash costs (₹11910 crores)
- Time costs (₹3037 crores)
- Update costs (₹224.28 crores)
- Enrolment center running costs (₹595 crores)
are added, the enrolment costs incurred by all actors blows past ₹35000 crores.
While one may take issue with some of the assumptions/estimates in the presumptive costs, it is important to remember it explains all the variables that must be considered while calculating enrolment costs and just not admitted budgeted costs, which was not done before.
As pointed out by Reetika Khera in her EPW article,
A little learning is a dangerous thing;
drink deep, or taste not the Pierian spring:
there shallow draughts intoxicate the brain,
and drinking largely sobers us again.
While enrolment costs are covered in this article, Part 2 of the series will cover integration costs for a few welfare programs, and Part 3 of the series will cover the benefits that have accrued to the various participants in these schemes.
