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In 1999 after the Kargil war, the Kargil Review Committee, headed by security analyst K. Subrahmanyam, was formed to study the state of national security. It submitted its report to the then Prime Minister, Atal Bihari Vajpayee, on 7 January 2000. Among its various recommendations was the proposal that citizens in villages in border regions be issued identity cards on a priority basis, with such ID cards issued later to all people living in border states.

The Aadhaar project has been linked to welfare schemes and unemployment benefit schemes such as the domestic LPG scheme and MGNREGA. In these Direct Benefit Transfer (DBT) schemes, the subsidy money is directly transferred to a bank account which is Aadhaar-linked. Previously, however, the direct-benefit transfer had been carried out quite successfully via the National Electronic Funds Transfer (NEFT) system, which did not depend on Aadhaar.