It's Raining Smartcards

A European regulator, when asked why Europeans were so averse to having a single standard for products, replied “here in Europe we love standards. That’s why we have so many of them.”

Unfortunately, India seems to be following the same logic in its implementation of smartcard ID systems. Perhaps prompted by the Planning Commission's official endorsement, it seems like every branch of the government has simultaneously decided that a national smartcard-based ID would be a great idea and unilaterally announced plans to implement its own smartcard ID system. Many of these plans, such as the government of AP’s pilot smartcard system for distribution of NREG wages or the government of Rajasthan plan to distribute smartcards to all poor households as part of its implementation of the new Aam Admi Bima Yojana, are well thought out and have huge potential. Others, such as Chidambaram’s recently announced plan to use smartcards for PDS in Haryana, seem to be little more than half-hearted attempts to jump on the bureaucratic bandwagon.

I am a big fan of smartcards and believe that they have tremendous potential to improve the efficiency of government service delivery, but all this rampant enthusiasm for smartcards has me a little concerned. A smartcard-based ID system, like all national ID systems, is a public good with huge up front costs. Establishing a smartcard based system in India would require not only providing physical cards to end clients, but also confirming the identities of the clients, establishing a network of agents and card readers to make effective use of the cards, and setting up a back end MIS to manage transaction information. Due to the high costs involved in implementing such a system, it is unlikely that the initial investment will be justified unless the cards are used to provide several different services. What happens when the Finance Minister realizes that the benefits of using smartcards to deliver PDS is grossly outweighed by the costs? Will he scrap the whole system? This would be a shame because, while the benefits accruing from delivery of PDS services might not justify the costs of the system, if other government were simultaneously delivered via the same cards the benefits would almost certainly outweigh the costs.

This doesn’t mean that government agencies necessarily need to completely plan out what government services would be delivered via a smartcard system from the outset. Rather, they should adopt a strategy of using the smartcards to deliver the most widely used government services first and then layering on other services later. The NREGs and aam admi bima yojana (where it is rolled out), with their near-universal coverage of the poor, are good candidates for initial roll out. Still, for the smartcards to really deliver value, other services should quickly be layered on top of these.