Getting set for second stage of reforms

Linking Aadhaar to I-T returns and PAN could set in motion reforms to reduce tax evasion and streamline governance.

By Author Prof Kaustuva Barik   |   Published: 31st Mar 2017   1:51 am

The decision of the Central government on March 22, 2017, to make the 12-digit unique identification number – Aadhaar – mandatory for filing income tax returns and getting Permanent Account Number (PAN) is an important one on two counts. One, it discards the hitherto voluntary nature of its usage. Two, it has the go-ahead signal from the Supreme Court, at least till a final decision on the matter is taken. An implication of the above is that individual taxpayers do not have a choice of bypassing the Aadhaar card.

It is interesting to note that the policy came as a part of the Financial Bill 2017-18, a strategic move to avoid the possibility of a pitfall in the Rajya Sabha, where the government does not have the requisite majority. Expectedly, the policy invited criticism from several quarters, many of them resorting to the legal route of dislodging it.

Exactly after a week of the Central government’s decision, the Supreme Court came with an interim ruling that Aadhaar cannot be made compulsory for government welfare schemes while it can be made mandatory for non-welfare activities like opening of a bank account or filing of income tax returns. The apparent concern of the court was to ascertain that section of the poor and the deserving do not get excluded from reaping benefits of the social security measures, merely because they do not have an Aadhaar card.

Uniqueness of Aadhaar
An advantage of Aadhaar is that it retains multimodal biometric data (fingerprints and iris) of a person that is unique in nature. Such uniqueness of data rules out the possibility of a person having more than one Aadhaar card or the same set of data being assigned to more than one person. Further, such uniqueness of the biometric data facilitates establishment of identity of the individual and at the same time minimises possibility for impersonation.

In view of the advantages, there is a consistent rise over time in the number of institutions and the variety of purposes for which Aadhaar is being used. Many of us would not have noticed that there are a few recruitment boards, which have made it mandatory for applicants to provide Aadhaar number (eg, Railway Recruitment Board). There are several examining bodies, which visualise making Aadhaar compulsory for appearing in various examinations (eg, NEET).

Concerted efforts are being made to link Aadhaar number with bank accounts, employee pension schemes, voter card and mobile phone numbers. There are several welfare schemes where Aadhaar is being increasingly used such as MGNREGA and public distribution system (PDS).

Two major criticisms are levied against Aadhaar. One, it amounts to breach of privacy of an individual as biometric data are collected. Two, involvement of private players in data collection process poses a security threat. Aadhaar, however, is not the only agency that collects biometric data of an individual. Importantly, such issues are not raised when fingerprints are collected while applying for a driving licence or registering a property. Often, collection of data, including biometric data, is outsourced to private players. Further, data security can be improved by appropriate regulatory measures.

There are several unique biological traits for individuals such as fingerprints, retina and iris patterns, voice waves and DNA. Many of these traits are increasingly being used for authentication purposes. Unlocking of mobile phones and laptops through iris pattern and voice pattern is being used these days for security reasons. Iris pattern-based authentication is being used in many ATM machines. There is a need to reap the benefits of such digital technology. Wider use of Aadhaar-based authentication of individuals in India is expected to reduce corruption and streamline governance.

Micro Reforms
For quite some time, it appeared that India has exhausted the scope for further reforms. A closer look at policy formulation in recent years indicates that our obsession got entangled with privatisation and liberalisation in macroeconomic policy variables. In the process, of late, our focus remained on minor tinkering only – where to allow private players and where to increase the proportion of FDI.

Carrying economic reforms to its next stage seemed to be a formidable task. In fact, this appears to be a case of confusion between economic reforms and economic liberalisation. While economic liberalisation means removal of restrictions or controls, economic reforms imply bringing about changes in institutions or practices so as to improve it. There is a need to steer the country to a second stage of economic reforms, emphasising more on micro issues concerning economic agents such as individuals and firms; much beyond the sectoral and national aggregates.

So far we did not pay much heed to governance issues – simpler and better regulations, lesser corruption, greater transparency, and stronger property rights. No wonder, India ranks 130 on a list of 190 countries in the ‘Ease of doing Business’ index constructed by the World bank. In the Corruption Perception Index constructed by the Transparency International, India ranks 79 on a list of 169 countries.

Better governance, simplification of rules and bringing transparency in dealings are the needs of the hour. In this perspective, linking Aadhaar with filing of income tax returns and getting PAN card is a step in the right direction. It could set in motion a number of steps towards micro reforms of the Indian economy leading to lesser tax evasion and better governance.

(The author is Professor of Economics, Indira Gandhi National Open University, New Delhi)