MUMBAI, India — In a landmark ruling on Wednesday, India’s Supreme Court placed strict limits on the government’s national biometric identity system while also finding that the sweeping program did not fundamentally violate the privacy rights of the country’s 1.3 billion residents.
A five-justice panel of the court decided by 4-1 to approve the use of the program, called Aadhaar, for matters involving the public purse, such as the distribution of food rations and other government benefits and the collection of income taxes.
But the panel struck down Prime Minister Narendra Modi’s efforts to require the digital ID for other purposes, including verifying the identity of students taking exams, and established new protections meant to prevent the government from misusing the data in the name of national security.
The justices also threw out a powerful provision in the 2016 Aadhaar Act that had allowed private companies like banks and cellphone companies — sometimes at the government’s behest — to use the ID to verify customer identities. That was at least a temporary blow to the dreams of technology billionaires, like Nandan Nilekani and Vinod Khosla, who saw the system as crucial to a new generation of digital businesses like online vehicle insurance and pre-employment background checks.
Aadhaar, a Hindi word meaning “foundation,” was conceived as a difficult-to-forge ID that would reduce fraud and improve the delivery of government welfare programs. The intention was to scan the fingerprints, irises and faces of every Indian and then use those unique biometric attributes to check identity when someone picked up subsidized rice or joined a government work program.
In its 1,448-page decision — broken up into two concurring opinions and a stinging dissent — the court relied on precedents from around the world to set broad parameters for how the ID system could be used in India, a country that is adding tens of millions of new internet users a year but has few laws governing data protection.
Writing for the majority, Justice A.K. Sikri said that, with the court’s restrictions, “we find that the Aadhaar Act has struck a fair balance between the right of privacy of the individual with right to life of the same individual as a beneficiary.”
But the court also urged the government to further clarify those rights through a new national data protection law that is currently being debated.
The ruling on Wednesday affects a vast swath of Indian life, from who can collect benefits like food assistance and pensions to how mobile phone providers create new accounts. Some states, such as Andhra Pradesh, had planned to integrate the ID system into far-reaching surveillance programs, something that will now be difficult, given the court’s restrictions on how the data can be used.
The decision could also have influence beyond India’s borders, as other countries, including Britain and the Philippines, try to balance privacy against the needs of government in their own national identity and surveillance programs.
“India is a great case study,” said C.V. Madhukar, who leads the digital identity efforts of the Omidyar Network, an investment firm based in California. “The Supreme Court’s thinking on this so far can provide guidance to many countries in Africa and the developing world, even the United States.”
Mr. Modi’s Bharatiya Janata Party and the opposition Indian National Congress, which began the Aadhaar program nearly a decade ago when it was in power, both claimed the ruling as a victory.
Rahul Gandhi, who is challenging Mr. Modi in the 2019 national elections, said the court had rejected the current government’s use of Aadhaar as “a tool of oppression and surveillance.”
However, Mr. Modi’s finance minister, Arun Jaitley, said the court had recognized the vast savings to the taxpayers from the program, which he estimated at $12 billion a year, from weeding out fake or duplicate recipients of government benefits.
“Technology as a tool of governance, as an instrument of conferring benefits to people, as an instrument of revenue collection, I think is a concept which nobody now really can deny,” he said. “We were entering uncharted areas, and one of the purposes of judicial review is what is the direction in which you can move and how much.”
Despite its original goal of improving government services and creating a simple universal ID, the Aadhaar program quickly became controversial.
Tens of millions of the initial enrollments were done by poorly trained or corrupt agents who recorded incorrect biometric or other personal data like birth dates. Sloppy security practices by state and local governments led to more than 200 data breaches of sensitive information, including Aadhaar numbers.
After Mr. Modi’s government made participation in Aadhaar mandatory for recipients of government benefits, millions of the poorest Indians were denied vital food rations when distribution shops had trouble reading fingerprints from work-worn hands or could not connect to the central server through India’s unreliable cellphone networks.
At least 25 Indians died of starvation after Aadhaar-related verification problems, according to a tally by one professor, Reetika Khera, who has conducted extensive field research on the program. Some local governments, such as New Delhi’s, stopped using the system for food programs.
Proponents argued that such problems were just teething pains. They said that a digital ID would be transformational in a country where hundreds of millions of poor people have long lacked a reliable, universally accepted way of proving who they are. For private companies like cellphone providers, Aadhaar turned a paper-intensive, two-day process of verifying a new customer’s identity into a 30-second fingerprint scan.
The court, which held 38 days of hearings in the spring on more than 30 challenges to the law, noted the security lapses in its decision and acknowledged that some Indians were losing important benefits because of the reliance on digital identification. But the court said it trusted the government to resolve the problems.
Shyam Divan, the veteran lawyer who kicked off the oral arguments for the plaintiffs challenging the law, said in an interview that the court had “contained” the government’s efforts to use Aadhaar to build a surveillance state. “And they have completely knocked out the private sector from this,” he said.
Aadhaar’s opponents also took heart in a dissent written by Justice D.Y. Chandrachud, who wrote the lead opinion last year in a related case that was the first to establish a fundamental right to privacy for Indians. In his dissent, Mr. Chandrachud embraced most of the challengers’ arguments and said that the Aadhaar Act was unconstitutional.
Srikanth Nadhamuni, the chief executive of Khosla Labs, which set up a business to offer private Aadhaar authentication services, said that the court’s ban on the commercial use of the digital ID was disappointing and that he hoped lawmakers would find a way to restore it in the coming data-protection legislation.
“There are a lot of small companies who need verification done,” he said, adding that the cost of performing such verification via an Aadhaar scan was 10 rupees, or about 14 cents, compared with 1,000 rupees for traditional paper verification.
For ordinary Indians, who had faced ever-increasing demands for their digital ID cards, the court’s limits could bring some peace.
Sat Pal, a taxi driver in New Delhi, said he had been asked to produce his Aadhaar everywhere, including to get his driver’s license and vehicle registration.
“Lately they started demanding it at school admission,” he said. “I went to my bank to ask for a checkbook. They demanded Aadhaar. I asked them why. They said you have to produce it. So it became a tool for harassing people. Now it will be a big relief.”
Hari Kumar contributed reporting from New Delhi.
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