A controversial biometric project in India, which could require people to produce their biometric IDs to collect government subsidies, has received a significant setback from the country's Supreme Court.

The court ruled this week in an interim order that people cannot be required to have the controversial Aadhaar identification to collect state subsidies, even as the Unique Identification Authority of India (UIDAI), the government agency that manages the project, has been trying to promote the Aadhaar number as proof of identity for a variety of services including banking.

The UIDAI has said that the scheme is voluntary, but some states and agencies have attempted to link the identification to the implementation of programs such as cash subsidies for cooking gas that benefit even the middle and richer classes.

"I signed up for Aadhaar only to ensure that I continue to get a gas cylinder at reasonable rates," said an executive in Bangalore who had queued up a few months ago for an Aadhaar number. The state of Maharashtra, for example, aims to be the first state in the country to roll out Aadhaar-linked subsidy transfers to LPG (liquified petroleum gas) consumers across all the districts in the state.

Pending a final order, the court ruled that "....no person should suffer for not getting the Adhaar card inspite of the fact that some authority had issued a circular making it mandatory...."

UIDAI Chairman Nandan Nilekani did not immediately agree to discuss the court order.

The Aadhaar project is the result of an executive order, and is not backed by a law passed by India's Parliament, so its legality can be in question, said Pavan Duggal, a cyberlaw expert who practices before India's Supreme Court. The project could be in violation of the country's Information Technology Act and rules which cover collection, handling and processing of sensitive personal data, he added.

Aadhaar, though said to be voluntary, could also be in violation of fundamental rights of the Indian constitution relating to right to life and privacy, as a perception is being created that the ID will be required for subsidies and benefits, Duggal added.

The government should have considered getting an enabling law passed by Parliament for the data collection as also a strong privacy law to prevent misuse of Aadhaar related data and collation of multiple databases using Aadhaar, because of the privacy issues involved and its implications on fundamental rights, said Pranesh Prakash, Policy Director at the Centre for Internet and Society in Bangalore.

The biometric project, which collects 10 fingerprints, iris scan and other information such as name, date of birth and address, has been criticized by a number of privacy groups who worry that the data could at some point be misused by the government. There is also a risk that such large databases could be hacked, putting at risk information of people. It is not clear what are the measures taken by UIDAI to protect the authenticity and correctness of the biometric information, and prevent access by foreign powers, Duggal said.

The Aadhaar number now allows different agencies including private organizations to collect and exchange data between them, which may be useful to marketers, for example, Prakash said. Previously, it wasn't practical as the agencies would have difficulty ensuring that the information was about the same person, he added.

The Supreme Court has also ruled that illegal immigrants should not be enrolled under the Aadhaar program, which is meant to facilitate subsidized services to Indian citizens. The Aadhaar, which does not collect citizenship information, is likely to be misused by illegal migrants, activists have said.

One of the many challenges facing the Aadhaar program is that village-level politicians and influence peddlers cook up data to enroll under subsidy schemes people who are not eligible for benefits, or people who are nonexistent. The traditional paper ration card scheme and voter rolls are usually stuffed with nonexistent people or people who do not typically qualify for benefits.

Aadhaar was expected to remove these discrepancies by more accurate collection of data on people who enrolled under the scheme. But a number of users have complained that the Aadhaar cards they have received have errors in their names, addresses and other details. One newspaper reported that an Aadhaar applicant received a card that had the face of a dog in place of his photograph.

UIDAI aims to provide 600 million Aadhaar numbers to residents by 2014.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com