Financial resource needed for sustainable rural drinking water is estimated from expenditure data for all states in India. The estimates show that user financing becomes essential for sustainability of the system. Since user financing affects weaker sections adversely, a subsidy from consumers above poverty line to those below is incorporated in the tariff design along the Faulhaberian principles. The rate so arrived at, indicates that public subsidy is still needed for some states with high cost of provision due to their hydro-geological and topographical conditions and/or cost inefficiency. Analysis of institutions based on co-operative action among users suggests that they have several advantages over the other polar alternatives, state ownership and privatisation, in providing potable water. Participatory management inherent in such institutions also enables the government to change its role from provider to facilitator.
