It seems outlandish that Sony’s iconic gaming console Play Station 3, Hallmark greeting cards and smartphones should have anything to do with India’s social welfare programmes. But they do.

Technology has an amazing ability to overturn stereotypes and open up new possibilities by meshing together disparate things. A standard birthday card that plays the familiar tune when you open it has a chip that has more computing power than all of the Allied and Axis powers had in 1945.

Michio Kaku, a theoretical physicist and strong advocate of the string theory, in his book Physics of the Future: How Science Will Shape Human Destiny and Our Daily Lives by the Year 2100, says Hitler, Roosevelt and Stalin would have killed for that chip. But we just discard it. An average smartphone has more computing muscle in it than the NASA mission that put men on the moon in 1969. The power inside a '15,000 Play Station is more than that of the $10 million American supercomputer Cray X-MP 24 of the 1990s that was used by the military establishment to design nuclear weapons.

All these incredible advancements have been made possible because chips are getting faster, cheaper and smaller all the time. It also means that chips are getting embedded in the unlikeliest of inanimate and animate objects, from plastic cards, furniture, cars to birds, apes and human beings. Amid all this lies an Indian story of what could be, and just as easily, also a story of what could have been.

India spends over '4,00,000 crore every year on schemes, projects and programmes broadly falling within the category of social welfare. Every union budget since 2004 has marked a steady increase in the allocation to primary healthcare, education, maternal and child nutrition, rural employment and agriculture. Of the total budgeted expenditure of '14,90,925 crore for 2012-13, social sector spending constitutes 36.4% of the allocation, an increase of 17% over the previous year. Yet the combined total expenditure of the central and state governments on social services is just over 7% of the GDP at current prices.

For all their rhetoric about keeping the state out of their lives, some of the Western countries spend substantially more on their people. Data from the International Monetary Fund (IMF), for instance, indicates that Germany spends a significant 25% of its GDP on social services like education, sports, arts and culture, medical and public health, family welfare, social security and nutrition. France spends 23%, the UK 12% and even the cradle of aggressive capitalism the US spends 12% of its GDP on social services. The question here is not as much about the proportion of social sector spending in India, as it is about how much of it reaches the needy.

Germany and France lose less than one percent of their budgeted outlay to what in India is euphemistically referred to as a leakage. A leakage can range from corrupt officials and contractors siphoning off money to sheer accounting bullheadedness that prevents the allocation of a sanctioned amount. In the US and UK the leakage is about 3%.

For a long time, there was nothing more than a ring of truth to what Rajiv Gandhi had once said: “Only 15 paise out of a rupee reaches the poor.” But there are several studies that reveal that India loses – or leaks if one goes by officialese – at least 50 percent of its budgeted outlay for the social sector. For instance, a planning commission study on targeted public distribution system (TPDS), spread across four years and covering 3,600 households, found that out of every rupee spent by the government on TPDS, only 27 paise actually reached the poor. That’s a leakage of 73%.

Similarly, a comptroller and auditor general (CAG) audit of the Sarva Shiksha Abhiyan (SSA) reveals that despite using 86 percent of the allocated funds, the scheme is nowhere near achieving its target, with 1.36 crore children in the age group of 6-14 years still out of the school system.

India’s social welfare system, even at its best behaviour, gulps down half the money meant for the poor, disadvantaged and disempowered. So the actual social sector spending of the state and central governments is closer to 3.5 percent of the GDP. Usual explanations of a weak logistical network, inadequate cold storage facilities and godowns and lack of governance structures cannot explain the yawning gap between India and the other countries with a higher spending on the social sector. There is something that the Western countries have got right that India hasn’t. In unravelling that answer is a great opportunity for India to repair long standing structural faults.

Germany, France, the US and the UK are as different as chalk is from cheese. Yet they have two things in common. First, all their social welfare schemes are routed through the single window of a social security card. It’s a plastic card with a memory chip that’s strong enough to have powered a first-generation iPod. This card not only carries all necessary personal information, but is used to document transactions and activities as varied as electronic commerce and parking tickets.

In fact, Sweden, which is at the cutting edge of embedding technology in daily social life, has a beautifully functioning system where bar-coded cars are scanned automatically along with the highway and if any misdemeanour is recorded, the ticket is mailed across to the person concerned and a fine is deducted after a certain period of no contestation by the culprit.

Second, all systems dealing with transactions of governance and economy are digitised and seamlessly integrated with each other. It’s this close coupling with each other that allows the governments of these countries to choose the social security card as their primary entry point for identification of beneficiaries, monitoring the impact of their programmes, getting valuable feedback for improvement and quickly plugging any loopholes. It’s a combination of these two factors that explains why these countries have been able to keep their ‘leakages’ to a minimum.

The Indian bureaucracy needs to embrace technology, not just in bits and pieces but in its entirety. There are three fundamental directions that the Indian policy establishment needs to take. The first is to convert the Aadhaar card into a self-sustaining intelligent system by embedding it with a memory chip that can not only store all relevant personal information, but also interact with other digital devices like computers and mobile phones. This step will not succeed unless Aadhaar is given the same singular status that European governments give the social security card. The identity card issued by the national population register (NPR), the permanent account number (PAN) card of the income tax, the ration card and even the driving licence have to be either merged with Aadhaar or at least linked to it (those interested in knowing more about the NPR-UID debate can see ‘Identity Politics of a Different Kind’ published in the April 1-15, 2011 edition of Governance Now).

The second is to digitise all customer-facing interfaces of governance from the local to the national levels. Each of these levels has to seamlessly integrate with the other and interact with the Aadhaar card as a single-point entry for any transaction or a service with an institution of the state. This is particularly necessary if direct cash transfers have to become a ‘no leakage’ reality (see ‘Goodbye Money, Nice Knowing You’ published in the October 1-15 edition of Governance Now).

The third is to make mobile phones the primary transaction system for delivery of social services, especially payments for beneficiaries of social welfare schemes. Mobile wallet is coming of age and our policymakers need to wake up to it. India has a mobile subscriber base of around 93 crore and it’s only a matter of time before every single Indian acquires a mobile device (see ‘Transformation in Your Pocket’ published in the January 16-31 edition of Governance Now).

Meshed together, these three steps will not only substantially increase the efficiency of social sector spending by plugging leakages, but will also help the government realistically apply the concept of targeted subsidies at the ground-level. This will have a long-term impact of reducing fiscal deficit, improving government finances and empowering those who are really in need.

This isn’t a technological pipe-dream. The cost of a computer chip with the processing power of today’s high-end quad-core chip will be 50 paise in 2020. It will be so small that it can be embedded on to practically anything. Today’s Internet of Devices will become tomorrow’s Internet of Things. Between how and how soon we embrace this technological reality, lies two stories of what India could be and what India could have been. How the story ends is in our hands.

Three things policymakers need to do

1. Convert the Aadhaar card into a self-sustaining intelligent system by embedding it with a memory chip that can not only store all relevant personal information, but also interact with other digital devices like computers and mobile phones. This step will not succeed unless Aadhaar is given the same singular status that European governments give the social security card. The identity card issued by the national population register (NPR), the permanent account number (PAN) card of the income tax, the ration card and even the driving licence have to be either merged with Aadhaar or at least linked to it.

2. Digitise all customer-facing interfaces of governance from the local to the national levels. Each of these levels has to seamlessly integrate with the other and interact with the Aadhaar card as a single-point entry for any transaction or a service with an institution of the state. This is particularly necessary if direct cash transfers have to become a ‘no leakage’ reality.

3. Make mobile phones the primary transaction system for delivery of social services, especially payments for beneficiaries of social welfare schemes. Mobile wallet is coming of age and our policymakers need to wake up to it. India has a mobile subscriber base of around 93 crore and it’s only a matter of time before every single Indian acquires a mobile device.