The stock market regulator is working on a new concept based on the UID, which is being issued to 60 crore ‘poor’ Indians. This new proposal is somewhat surprising, as not so long ago the SEBI chief was lecturing mutual funds not to target the poor
Nandan Nilekani, the head of the Unique Identification Authority of India (UIDAI), has continuously maintained that obtaining the biometrics-based unique identification (UID) would be voluntary for Indians. This promise of 'voluntary enrolment' silenced most privacy advocates who argued that UID is a serious breach of privacy and that the biometric databases are unsafe.
Now it seems that the UIDAI may be trying some backdoor methods to make the identification registration mandatory. At the weekend, Securities and Exchange Board of India (SEBI) chief CB Bhave said in a speech that the market regulator is working on a new concept of operations based on the unique identification number (UIDN). UIDN, or Aadhaar, is the ambitious project of the UIDAI which, it is estimated, will cost the public exchequer about Rs45,000 crore over five years.
But this is not the first time that SEBI has tried to enforce some identification for investors. The market regulator discontinued it's much-touted 'market participant identification number' (MAPIN) scheme in June-July 2005 after a six-member committee, appointed to re-examine the use, structure and feasibility of the MAPIN database-bowing to popular opinion-recommended an end to biometric identification for investors. Mr Bhave was then heading the National Securities Depository Ltd (NSDL) and was one of the members who left the committee before it could draft and submit a report. Mr Bhave was a big supporter of MAPIN and NSDL would have been a big beneficiary.
MAPIN registered fingerprints along with a photograph. Many retail investors believed that the use of fingerprints and photographs (used worldwide for identification of criminals) would be a punishment for honest investors, as no trickster would be so stupid as to undertake fraudulent transactions on his own ID. The other factor was that actual trading, at the time, did not involve biometrics and there was no way of verifying the fingerprints and photograph of an investor.
Besides, there were other avenues like depository accounts, brokers, permanent account number (PAN) and bank account numbers, available to the regulators to track an investor and his investments.
In the first round of MAPIN, the stock market regulator issued about 4,00,000 UIDs, mostly to senior officials of various companies, institutions and brokerages, at a charge of Rs300 per ID.
Today, it's the same story with Aadhaar, or UIDN, which is to be issued to about 60 crore residents in India. Everyone, whether it is Nandan Nilekani or even the prime minister, believe that this will help improve the public distribution system (PDS) and that the UID will help to ensure that the poor would be able to receive food grain, which otherwise gets diverted in transit from government warehouses to PDS shops. (Read: http://www.moneylife.in/article/78/8567.html). This would mean that the poor would be given the Aadhaar number in order to get regular food and other social security benefits. Now if, as Mr Nilekani says, Aadhaar is not mandatory, about half of the country's population would be left out of the UID process. (Read: UID = more 'consumers', admits Nilekani http://www.moneylife.in/article/78/11574.html)
But SEBI wants to work out a solution based on the UID, so that the poor can also turn retail participant in the markets. Indeed, a noble idea. Unfortunately, the SEBI chief doesn't really believe so.
In June, addressing a mutual fund summit, Mr Bhave said, "Financial inclusion is a noble goal and everyone should be working towards achieving it, but one must keep in mind the target customer. A person whose lifetime savings is a mere Rs50,000 can't afford to invest in mutual funds. If the market crashes tomorrow, he cannot take that kind of risk. You will only give him what the net asset value (NAV) is at that particular time."
What applies to mutual funds must also be true for the stock market. Still, the SEBI chief is proposing to use the UID database, expecting the 'poor' to turn investors.
According to an activist, Aadhaar is a blind endorsement of Professor Coimbatore Krishnarao (CK) Prahalad's 'Theory of Marketing to the Bottom of the Pyramid', which in India's case is 60 crore people living below the poverty line; would-be consumers who corporations wish to target in order to improve their bottom line. "It's an idea in conflict, because the target population for this mega-marketing adventure are consumers who cannot afford three square meals a day, let alone avail of goods and services aimed at them by corporations," the activist said.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam