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In an era of reforms in the health sector and with the role of government in health provision diminishing, emphasis is shifting to making the sector efficient. This article analyses the performance of the rural public health systems of 16 major States in India, using stochastic production frontier techniques and panel data for the period 1986-97. The results show that States differ not only in capacity-building in terms of health infrastructure created, but also in efficiency in using these inputs. There is scope for health systems to re-orient their strategies in order to provide the best health in the most efficient way or at the lowest possible cost.