A National Identity System=huge benefits

A universal national identity system for India will deliver end user benefits in four major areas: (1) welfare delivery and tax collections, (2) financial inclusion, (3) voter registration, and (4) national security.

In addition to these important benefits, the manner in which such a system is implemented can also generate substantial benefits.

An innovation ecosystem implementation approach would generate jobs, create several new companies, and potentially launch entirely new industries.

It would harness the power of India's world-leading telecom and IT/BPO industries and establish India as a global leader in payments processing, affordable financial services and mass e-governance.

A universal national identity system for India must include a national identification number, absolute biometric proof of identity and the ability to serve as a platform for multiple applications.

Analysing national identity systems and other national data infrastructure projects across the world suggests three distinct implementation models: (1) the centralized national authority model; (2) the decentralized model; and (3) the innovation ecosystem model.

The national authority model has been followed in Germany, France, Spain, Italy and many other European countries. China, Pakistan and Sri Lanka have implemented a similar approach.

For instance, the Spanish identity card is issued by the national government, which manages the entire system. Each individual gets this card, with a unique national identification number, when they turn 14.

The card is a machine-readable plastic photo card with signature, birth date and birth location. The national identification number is used for tax collection and welfare delivery.

Banks use it to build credit histories and the election system uses it for voter identification.

Spain (and most other European countries) is in the process of upgrading its identity cards by using smart card technology.

Brazil and the US use a decentralized model to run their national identity systems. In Brazil, a central authority sets standards on unique identification numbers, data capture, and enrollment procedures.

However, the actual card is issued by different provincial authorities. This is a pragmatic solution given Brazil's large and widely dispersed population.

Cards are issued when an individual turns 18.

The Brazilian identity card is a plastic card with photo, birth date, parents' names, fingerprint and signature.

The card is used for getting a driver's licence, opening a bank account, completing all civil transactions and for gaining access to welfare programs.

Each Brazilian gets either a CFP number, a unique identifier issued by the federal tax authorities, and/or an RG number issued by a province.

Several national data infrastructure projects, such as Germany's highway toll collection system, use an innovation ecosystem approach.

The German toll collection system was launched in 2001 to ensure that every truck using German roads paid tolls and congestion charges.

All trucks have embedded GPS-based devices that communicate through the mobile data network.

The German government played an important role in designing the system and collects $4 billion annually in revenues from the toll collection system.

A consortium of companies including DaimlerChrysler, Deutsche Telekom and the French motorway operator Cofiroute operate the system through an independent, for-profit company called Toll Collect.

The company issues the vehicle tracking numbers, collects the tolls from drivers and then disburses it to various recipients using agreed-upon allocation formulas. This approach has led to several technology breakthroughs and positioned Germany as the world leader in advanced vehicle tracking systems.

India could follow a similar approach. A National Mission must be set up to implement the system within four-five years.

The mission would define key standards, including card specifications, data structures, centralized data sharing and numbering protocols.

It would then discuss and release the reference design to an innovation ecosystem that would consist of enrollment agencies, payment processors, software vendors, equipment manufacturers and various state authorities.

If the mission is based outside Delhi (say in Bangalore or Hyderabad or in an even smaller city) and requires consortium members to co-locate, an innovation cluster will likely develop.

A well-coordinated ecosystem is required to securely enroll India's vast population in just four-five years. Here is how. Once the key standards are established (say, within six months or so), the Mission would ask IT/BPO companies to bid for various implementation regions.

Five or six different companies could be selected to run the enrollment process in different regions of the country.

Another IT company could be picked to run the centralized database that would be linked into the regional databases and to other databases such as the voter registration system.

These contracts would be renewed every few years depending on company performance against key success metrics.

In parallel, the mission would bid out for three-four universal payments platforms that could be operated by payment processors such as Visa and MasterCard. Payment platforms would utilize India's outstanding mobile data networks. Payment processors would ensure that: (1) terminals were freely available to merchants; (2) identity cards could be used as credit/debit cards; and, (3) each individual would get a bank account.

At enrollment, each citizen would choose a banking services provider who would then establish an account for that individual.

This account would then be permanently linked to the individual's identification number.

All government welfare schemes would then use this bank account to make welfare payments.

Naturally, the citizen could switch this account from one bank to another, say once a year.

With this universal data infrastructure in place, many other applications could also be delivered. For instance, each eligible student could get an education voucher to attend accredited schools or colleges.

The government would deliver the voucher payment directly into the student's account.

The educational institution could then directly debit approved charges from the student's bank account. Similarly, financial institutions could build a credit history for the individual.

Land authorities could assign title to farmers, and so on.

Such a national identity system would spawn many new industries in India and position India as the global leader for affordable identity management, payment systems and e-governance. Entirely new payment terminals would have to be designed and mass-produced.

Massive databases would have to be maintained to track citizens and to link various applications. Huge new software programs would be required to process payments.

Financial transactions and bank accounts would have to be operated at the lowest possible cost.

State governments could also bid out many of their functions, such as drivers' licence issuance.

Many new companies will spring up and India will be able to export its expertise around the world.

A national identity system implemented through an innovation ecosystem thus generates huge end user benefits as well as dramatic industrial development benefits.

The author is MD, Courage Capital Management, a global investment firm. These are his personal views