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Cost of the UID Project

One of the arguments often made against UID is the ‘enormous’ cost of the project. Given technology risks and limited benefits, the argument goes, such a project is not justified “for a poor country, where 70 per cent of the population has no toilets.”

Ever since the project started in 2009, critics have been claiming that it would cost well over Rs 1.5 lakh crores -- a number repeated so often by the media that it has become an article of faith among civil society circles. Even a Standing Committee of the Parliament gave credence to that number in its recent report on the proposed UID law.

What was the basis of that estimate and how does it compare to the UIDAI’s actual cost experience to date?

We decided to do a bit of our own research to find the source. And guess what? It was a tad easier than finding the source of The Nile, eat your heart out Stanley!

The number was first reported by the Economic Times in Jun 2009, which did not cite any source. The first major reference, however, came from Prof. R. Ramakumar of the Tata Institute of Social Sciences:

"...the costs involved in such a project are always enormous and have to be weighed against the limited benefits that are likely to follow. In India, the cost estimated by the government itself is a whopping Rs.1.5 lakh crore....The critique of the LSE group on the costing exercise of the U.K. government is a good case study of why the costs of such schemes are typically underestimated."('High-cost, High-risk', Frontline, Aug 1-14, 2009)

Ramakumar too did not cite the source for his ‘whopping’ cost estimate; but when a few weeks later Karan Thapar of Devil’s Advocate confronted Nandan Nilekani on the Frontline article, his response was very clear: “I don't agree with that estimate. I don't know what the exact figure is but it is much less than that by a factor of 10.”

That response, however, did not stop Praful Bidwai, a well-known anti-Nuclear activist, who came up with an even higher estimate months later, extrapolating from a UK cost estimate:
"The LSE study estimated that the cost in Britain would be £10-20 billion. The proportionate cost in India would exceed Rs.2 lakh crore, enormous for a poor country...." ('Questionable Link', Frontline, Jun 05-18, 2010)
Several noted civil society activists have since faithfully followed the lead of Ramakumar and Bidwai to support their case against UID stance, never mind that their cost estimates bear no resemblance to reality, as we shall see below. 

 

We decided to subject those cost estimates to a reality check, by examining the UIDAI’s actual cost experience to date, its recent budget approvals, and a bit of projection into the future. And here is what we have concluded with a fair degree of confidence: The total cost of the UID project will be about Rs 18,000 crores, nearly 1/10 of Ramakumar and Bidwai’s estimates.  

 
Here is how we arrived at those numbers:
  1. We started with the UIDAI’s to date cumulative expenses towards operations, capital, and enrollment costs paid to Registrars, thru’ November 2011: Rs 673 crores (including Rs 333 crores paid to Registrars)a
  2. Added reasonable projections of expenses from December 2011 through March 2012: Rs 887 crores (including Rs 667 crores paid to Registrars)b
  3. Added the additional budget approval for infrastructure and maintenance costs, including a Managed Service Provider, up to 2017-19: Rs 8,815 croresc
  4. Added the additional cost of enrolling all 1.2 billion people: Rs 8,000 croresd
Notes:
a) From the UIDAI website
b) Operations and capital expenses projected using current run rates; enrollment assistance to Registrars is for 20 crore enrolments at Rs 50/person
c) Per the UIDAI budget approved by the finance ministry
d) Assumes Rs. 50 as assistance to Registrar and Rs 30 for letter, postage and other enrollment related expenses. NPR’s estimate is reportedly smaller.

Given that we have used actual cost experience to date and approved and proposed budget figures, we have a high degree of confidence in our estimate, and there is no need any more to draw questionable conclusions from other country experiences. So we are glad to note that the media too has been climbing down from the earlier speculative numbers. Even Ramakumar now seems to have lowered his estimate a bit: “over Rs 50,000 crores,” he says in a December 2011 Frontline article. So much for his earlier argument that even the Rs 1.5 lakh crores number may be understated!

 
It may be instructive to look at the cost of UID from another perspective: The costs and wastages associated with our welfare schemes:
 
For example, the landmark MGNREGS program, which has been hailed as the world’s largest and most innovative pro-poor program, started out in 2006-7 with an expense of Rs 8,823 crores. It had since grown exponentially to about Rs 40,000 crores in 2010-11 (about 8.1% of plan budget). 
 
Two things have dominated the debate on MGNREGS budgets over the years: 1. There have been frequent reports from both the government and watchdog NGOs of massive diversion of funds, reported at various times as between 15-40% of the allocations to a state, and 2. In an interesting role reversal, civil society architects of the program have tended to downplay the leakage numbers, especially the contribution of identity fraud and fake muster roles in fund diversions.
 
Leaving politics aside, there is no question in our minds that even if a portion of the estimated fund leakages from MGNREGS can be stemmed through effective usage of Aadhaar in bank transfers and muster roll verification, it alone could conservatively save Rs 2,000 crores per year (5% of the cost). If we make similar assumptions on food subsidies (annual budget Rs 60,573 crores) and petroleum subsidies (annual budget Rs 23,640 crores), potential savings from just these three programs will be conservatively in the order of Rs 6,000 crores a year (which does not even consider potential savings in state subsidies).
 
We honestly think that Aadhaar will be a powerful technological tool to improve the management of our welfare schemes. And we are glad to see that the Rural Development Ministry and the banking sector are championing one of the more interesting pilots in Jharkhand: Linking MGNREGS to Aadhaar. The alternative scenario of No-UID, which the opponents are advocating, could lead to every state and every large program reinventing biometric cards, whose cumulative costs (if not their efficacy) could eventually add up to many times more than the budget for UID.
 
Perhaps for the first time in India’s history, we have a national project that is being executed by a highly committed professional team, comprising people from the government and the private sector. Despite many detractors, the project has met all of its goals thus far, unlike most government projects, and is ahead of schedule and under budget. It holds great potential to improve the delivery of services and to reduce the bureaucratic hoops that people have to go through every day due to a lack of a national identity system. And it can be a major weapon in the arsenal to fight corruption at all levels.
 
Let us not lend credence to highly inflated cost figures and understated benefits meant to discredit the project before it has had a chance to demonstrate its immense promise.  

 

Note: Since we prepared this cost analysis, UIDAI has announced an estimate of Rs 18,000 crores for the entire country (reported on 20 Jan 2012 by Hindustan Times)