Taking on from Sanjay Swamy's post at Medianama, I think it's an excellent idea. Sure, there are the rough edges that one needs to smoothen out, but that's the case with any scheme of this magnitude. The kind of opportunities that open if your national ID can be part of your mobile SIM card are amazing. Especially in the mobile banking and m-commerce area.
Picture this: Your bank and telecom provider, both as part of their KYC, will need to know your national ID. Now, if you have the ability to link-up your SIM with your national ID (both smart cards), you can perform a fully authenticated financial transaction through your mobile phone. Just think of the number of services that can be made available to the rural population through such a thing!
The biggest challenge this idea will face is from people getting paranoid about
(a)a telecom operator "owning their identity", and
(b) not everyone having a mobile phone.
The National ID should be a complete in itself even without a SIM or a mobile phone. Something like the new vehicle registration smart cards you get in Maharashtra nowadays. However, it should have a detachable SIM card built right into it. If you want to use the additional features of your National ID, just remove the SIM and plug it in. You can keep your current phone number and even switch operators -- thanks to Number Portability.
The telecom operator (or anyone else on the mobile network) will NOT have access to your identity unless you authorize them during a transaction which requires such an access. It's just that if the SIM and your National ID live on the same hardware (which is, the smart card) you can link them up with ease, as and when required!