Select a strategy :	Strategy: Table of Contents Strategy Summary Strategic Goals and Objectives Strategic Framework SO1: Economic Growth SO2: Health SO3: Disaster Management SO4: Energy and Environment SO5: Opportunity and Equity Glossary

	Introduction		Cross-Cutting Themes in New Strategy
	The Challenge		Geographic Focus of the New Strategy
	Priority Needs		The Long Term Vision
	USAID's Past Investments		Financial Resources and Implementation Arrangements
	Assumptions		Conclusion
	The New Strategy

Introduction
At the dawn of a new century, India and the United States are transforming their relationship. The many bonds between these two vibrant democracies, now allies in the war against terrorism, are growing stronger and deeper. In the 21st century, India is poised for greatness as it realizes an epic accomplishment: the eradication of endemic poverty.

Since independence, and particularly in the last decade, India has dramatically reduced its levels of poverty. While there are still many threats to further gains, with the right policies, peace and continued perseverance, India's development agenda can be completed by the middle of this century or earlier. Moreover, a strong, stable and economically advancing India can be a linchpin for peace and prosperity in the region.

This strategy outlines how USAID can partner with the people of India to address priority requirements, accelerate progress, and move cooperation between the United States and India onto a new plane.

This paper details a robust five-year investment portfolio in the areas of economic growth, health, energy and the environment, humanitarian assistance, and equity. It complies with the US Agency for International Development's guidance and the parameters provided by Washington. A longer term 15-year vision is also articulated in this document. Over the period of the five-year strategy, estimated funding levels of between $930 million to $1.160 billion are envisioned. If those resource levels are realized and the resources are well managed, the results will be a positive marker on India's path to eradicating poverty.

The Challenge
India, with one sixth of the world's population and one third of the world's poor, plays a pivotal role in the pursuit of global prosperity. Success in reducing the number of Indians living in poverty will bring hope for expanding global prosperity. By 2015, India aims to reduce the number of its people currently living in poverty by half. This target can be achieved.

In June of 1991, India began a process of opening and liberalizing its closed and inward focused economy. The new economy that has emerged is releasing the shackles of a half-century of central planning. The result has been a doubling of economic growth rates. Average annual pre-liberalization rates were 3-4% (1950-1990). Post-liberalization rates have hit 6-7% but now are faltering. Real wages have risen by roughly 2.5% and the percentage of households classified as destitute has fallen from 23% to 16%. Today, approximately 30% of the population lives in poverty, compared to the roughly 40% in the 1980s and more than 50% at independence. The absolute numbers that these percentages represent tell the human side of this story: In the last decade, more people have lifted themselves out of poverty than at any other time in India's history. One hundred million people condemned to poverty in the 1980s now live better lives.

India's new growth rates have contributed to positive overall trends in social statistics. Literacy rates have increased from 52% in 1991 to over 65% in 2001. Population growth rates have decreased by about 0.5%. The average number of children per family has dropped from 5.4 in 1970 to 2.9 in 1998. Child mortality and malnutrition rates have decreased. India is self-sufficient in food grain production and actually produces excess capacity. These impressive changes have resulted in improved living standards for some, but not all, Indians.

Dramatic negative social indicators remain. India has more poor people than the United States has citizens. More than 300 million people live in abject poverty-more than all the poor in Africa and Latin America combined-resulting in India being the country with the world's largest concentration of desperately poor people. These aggregates mask serious regional disparities, with most of India's poorest people living in the north.

India's population is now more than a billion and will overtake China as the world's most populous country by 2050. If current population growth rates are not reduced, India will reach two billion people by 2070. India has almost four million HIV positive people, and by 2030 the number could exceed 30 million. More than half of the country's children are malnourished. Thirty percent of the world's births occur in India and result in 20% of the world's maternal deaths and 20% of the world's child deaths. Fewer than half of Indian women are literate. Forty-two of every 1,000 girl children, compared to 29 boy children, die before reaching the age of five. More than two million Indian children die every year from preventable or curable diseases

Policy distortions are a major contributing factor to many of these poor indicators. For example, distorted energy subsidies result in annual losses of more than $5 billion-an amount equal to half of what all Indian states spend annually on all levels of education and double what they spend on health. Public sector expenditures average less than 1% of Gross Domestic Product (GDP) on health and less than 4% on education, and state fiscal policies make it impossible to raise the necessary financing to devote more than these minimal resources to critical social sectors.

The economic reforms instituted in 1991 have undoubtedly been instrumental in changing the face of India and its poverty. However, the pace of reform has slowed. A second generation of reforms is necessary to put growth on a higher trajectory. Experts agree that the country has the potential to grow at up to 10% per year, a rate that would allow another 100 million people to lift themselves out of poverty within a generation. A recent McKinsey and Company study of the Indian economy identified major barriers to faster economic growth and concluded that if India were to immediately dismantle all existing barriers to higher productivity, resulting increases would boost the GDP growth rate up to 6-10% per year. This growth would release additional investment capital worth roughly 6% of GDP, which would, in turn, create 75 million new jobs outside the agriculture sector in both the formal and informal sectors.

However, the second set of reforms is politically much more difficult to agree upon and implement than the first. Important reform measures that need to be addressed include easing government control in most sectors, reducing energy and agricultural subsidies, and reversing the growing gap between state revenues and expenditures. In the last five years, all of India's elected governments have recognized the need for more reform. While a consensus for additional reforms has emerged, it has not been translated into substantive action because implementing the reforms has the potential to negatively affect millions of Indians in the short term. Consequently, reforms are politically difficult to support in the absence of an existing high rate of growth that could help mitigate their impacts. Thus, the government faces a dilemma: It needs to deepen the reform process to stimulate higher growth, yet it needs higher growth to cushion the effects of reform.

Priority Needs
During 2001, USAID India conducted a series of analytic studies and consultations with partners to examine areas of development success and to learn more about remaining challenges. As a result, USAID has identified several areas of critical need and some possible opportunities for successful interventions.

Financing for Development: Public and private resources are needed to finance development. Currently, ballooning fiscal deficits inhibit states from financing the social investments necessary to ensure that people are well educated and healthy enough to be active participants in the new economy. The deficits discourage private sector investment. Public programs for marketing food and other commodities are expensive but fail to meet the needs of many of the poor. Cumulative subsidies (about 14.4% of GDP) and public enterprise losses are in desperate need of reduction. Expenditures should be redirected toward operations and maintenance and investment in infrastructure. To improve revenue collections and equity, the tax base needs broadening and tax administration requires improvement. Once system efficiency is improved, the freed-up resources should be invested in health and education.

Educated and Healthy People: Without well-educated, healthy citizens, no country can expect to reach its full potential. India's status in both education and health care is in need of dramatic improvement. The proportion of GDP spent on education has declined from 3.65% in 1991 to 3.48% at the end of the decade. Public health care expenditures are 0.8% of GDP-a number that places India in the bottom 10% of all countries in terms of spending on health care. Improving delivery of education and health services for better efficiency and access by the poor requires increasing public investment for primary education and health care.

Effective Governance: Strong and effective governmental institutions are vital to sustained development. Currently, the administration of many government activities at various levels of Indian society often results in economic costs that exceed benefits. The reform of various government systems is essential. For example, variable enforcement of laws, regulations, and contracts; and delayed administration of justice, are serious problems. The performance of the civil service is undermined by overstaffing, low salaries, and inadequate performance appraisals. Strengthening financial accountability and public sector reforms require a focus on quality and efficiency for service delivery, and an orientation toward a market economy.

A Robust Agriculture Sector: Agriculture, which still employs over 60% of the work force, contributes only 20% of GDP. The sector remains over-regulated, with an array of incentives that distort production and marketing. Public resources are used inefficiently, mostly for salaries and the financing of subsidies for water, electricity, fertilizer, and food. These subsidies realize neither intended welfare benefits, nor economic efficiency objectives. Half of subsidized food does not reach the poorest segment of society. Basic reforms are needed to eliminate market distortions and better integrate India into world markets, while increasing investment in agricultural technology and rural infrastructure, and protecting the poor.

Urban Services: Approximately 30% of India's population live in cities. In the next 20 years, this figure will grow to 42%, resulting in a projected urban population of over 500 million. With this tremendous growth, and the accompanying rapid increase in slum populations-which multiplied five-fold between 1982 and 2001-poverty will become increasingly concentrated in urban areas. Sustainable urban environmental systems for water, sewerage, and solid waste must be developed and managed to ensure that the poor have access to these services.

Clean, Reliable Energy and Water: Sustainable growth depends on both reliable energy and water supplies. Energy policies that threaten the availability of water are counter-productive to growth. Distribution losses in Indian power companies average more than 30% of production, a number that dramatically exceeds international standards. These losses are the result of inefficient policies and management, both of which must be changed. Rural consumers are charged so little for water that they are encouraged to pump excessive amounts. Subsidies for both electricity and water encourage this practice. To reduce the wasteful over-watering, subsidies for electricity and water need to be drastically reduced.

Full and Equitable Participation by All: To be sustainable, economic growth must include marginalized elements of the population. This includes women, children, members of lower castes, minority religious groups, and tribal people. India's national gender strategy aims to empower women socially and economically by changing attitudes toward girls; providing education, training, and employment; and supporting services and emphasizing women's rights and laws. However, implementation of the laws, as well as current social practices, vary widely throughout the country. India's social policies aim at greater levels of social mobility for members of lower castes and tribal people, but the policies require more vigorous and uniform application. Without specific interventions aimed at this sector of the population, women, girls, lower caste people, religious minorities, and tribals will not fully benefit from economic development.

USAID's Past Investments
USAID has been an active participant in India's development process for more than half a century. The new assistance strategy builds on those foundations as it focuses on the last remaining critical needs for India's economic and social development.

US economic assistance to India began in 1951 with food aid. The 1960s saw massive US resource transfers that helped India create the physical and human infrastructure necessary for development. Tremendous achievements were realized in health, education, infrastructure development, and poverty alleviation. By the mid-1980s, the focus of US assistance shifted to science and technology, health and family planning, agricultural research, social forestry, irrigation, and water resources management.

With the advent of economic reforms in 1991, USAID activities encouraged market liberalization and addressed the global issues of population growth, environmental degradation, HIV/AIDS, and other infectious diseases.

During the 1990s, India raised its annual economic growth rate, resulting in significant reductions in poverty levels. USAID was a strategic partner in that process. The USAID program helped:

• Strengthen India's Financial Markets: USAID helped establish the first securities depository, which significantly reduced transaction costs and securities fraud, and increased investor confidence.
• Demonstrate New Approaches to Environmental Protection: USAID encouraged policy changes and introduced new technologies that improved air quality, enhanced energy efficiency, and preserved biodiversity.
• Introduce Family Planning Innovations: USAID introduced family planning innovations that serve over 12 million women in Uttar Pradesh, a state whose population is equivalent to the sixth largest country in the world.
• Change Behavior among Those at High-Risk for Contracting HIV/AIDS: USAID's AIDS prevention and control activity in Tamil Nadu increased the use of sexual protection by sex workers and truck drivers.
• Integrate Health Care with Food Aid and Promote Empowerment of Women: Reaching over 100,000 villages in India, USAID's Title II food aid resources were used to improve the health and well being of 8 million mothers and children on a daily basis.

Progress achieved during the last decade created the development platform upon which India finds itself today-a platform that has created the necessary but not yet sufficient conditions to dramatically reduce poverty.

Assumptions
The US and India, the two largest democracies in the world, share the values upon which democracy is based and a commitment to dramatically transforming their relationship. The basic assumption of the new strategy is that this relationship will continue to advance and mature. The strategy also assumes that India will intensify its economic and social policy reforms to decrease poverty and increase social equity.

Political Climate: Politically, government is likely to continue to be run by coalitions at the center. More and more power will shift to state and local authorities due to coalition politics. The performance of state governments on reforms will vary considerably and be led increasingly by political parties that are regional or, when national, highly autonomous. These factors will hinder the ability of the central government to implement economic reforms and resolve conflict situations. On the other hand, because of India's federal system, individual states will be in a position to test different development strategies that can serve as useful examples to other states. Prudent management of international relations is likely to ensure continued peace, barring a possible reprise of conflict with Pakistan.

Economic Reform: Absent a crisis or more decisive leadership, dramatic, quick economic reform in the near term is unlikely. Growing food stocks may trigger a crisis in the agricultural sector, the sector least touched by reforms. India will slowly become more integrated into the global economy. No major political party is likely to reverse reforms made to date. At the state level there may be opportunities to demonstrate new approaches. However, varying qualities of governance are expected to widen inter-state disparities.

Fiscal Deficits: Fiscal policies constrain India's economic growth and human development. Collected revenues fall far short of budgetary needs; are often allocated for wasteful, expensive subsidies; and go disproportionately to support recurrent costs. Some states could succeed in tackling this issue. However, to the extent that they do not, continued high deficits will be a serious brake on social and infrastructure investments, and could ultimately trigger a major economic crisis.

Food Security: The monsoon will fail once or twice during the strategy period and other natural disasters (floods, drought, earthquakes, and cyclones) will occur. While India currently has significant grain stocks, policy failures and the lack of an effective distribution system will perpetuate household level food shortages.

Marginalized Groups, Including Women and Children: The status of women and other marginalized groups (child laborers, lower caste citizens, and tribals) will continue to be a cause for concern, especially in the north. Fortunately, the country's leadership is committed to solving these persistent problems.

Health Trends: The HIV/AIDS epidemic and other public health concerns, e.g., tuberculosis and population growth, will persist. Stabilizing the population in northern India remains a priority goal for world demographics. Inadequate access to education for girls and the quality and availability of health services are a powerful barrier to reaching this objective.

Urbanization: One-third of India's one billion people live in urban areas; within a generation, almost one-half will. This trend will continue and urban issues will require increasing attention.

Energy/Water Demand: The growing energy and water crises will continue. Current use patterns are economically and environmentally unsustainable. Inappropriate pricing, inefficient public sector management, and inadequate technology will continue to contribute to waste, theft, and adverse health impacts.

Donors: Foundations and multilateral and bilateral donors provide assistance to India. USAID will continue to collaborate closely with these donors on development investments.

Continued Funding Constraints: Historically, Congressional earmarks have resulted in approximately 85% of USAID funding for India being programmed in the following six funding categories, listed in descending order of their percentage of total resources: food aid, reproductive health, HIV/AIDS, other infectious diseases, child survival, and environment. These requirements are likely to continue.

The New Strategy
The liberalization of the Indian economy has been the single most important event in reducing poverty in India's history as an independent nation. The positive momentum of the past ten years must be continued and strengthened. USAID will assist in identifying and implementing additional reforms necessary to continue these positive economic and social changes and will help India provide social safety nets for those who may be negatively affected by reforms.

The USAID program during the new strategy period will focus on five areas:

• Economic Growth-targeting increased transparency and efficiency in the mobilization and allocation of resources;
• Health-targeting improved overall health with a greater integration of food assistance, and reduced fertility;
• Disaster Preparedness and Response-targeting reduced vulnerability to disasters for marginalized people;
• Energy and Water-targeting improved access to clean energy and water and the reduction of public subsidies through improved cost recovery and promoting more efficient technology and management; and
• Increased Equity and Social Justice for Vulnerable People-targeting improved access to elementary education, justice and other social and economic services for vulnerable groups, especially women and children.

Economic Growth
India can sustain annual economic growth rates as high as 10%, which could lift significant numbers of people out of poverty. Impediments to such growth include:

1. Underdeveloped financial markets;
2. Distorted agricultural policies;
3. A pattern of weak fiscal discipline in state and local governments; and
4. Wariness about economic reforms.

1. Financial Markets
A higher economic growth path that reduces poverty faster needs large capital outlays for physical and social infrastructure. To mobilize private capital, a strong financial system is essential in order to attract foreign investors and encourage Indian savings for investment. In a country of more than a billion people, the current size of the investor population is only a quarter of that in the US. USAID will help invigorate India's capital markets to mobilize resources for development investment.

The new strategy will:

• Strengthen financial market regulation, surveillance, and enforcement;
• Improve disclosure and dissemination standards for financial market information;
• Promote investor education and improve investor confidence; and
• Encourage private sector financing for infrastructure, particularly in urban areas.

Broadening the country's financial marketplace is key for a new wave of economic reforms. Opening up markets to institutional customers, such as insurers and pension funds, secures longer term fund sources. The corporate clout of these clients can raise the quality of financial services in firms where they invest. India's insurance industry was a public sector monopoly until recently. Its transition to a privatized industry is now underway. Existing pension and retirement systems cover only about 11% of the working population, and investment portfolios tend to be low yielding.

The new strategy will:

• Assist in the transition from public sector monopolies to private sector participation in insurance and pension funds;
• Enhance regulatory efforts to develop a sound insurance market and encourage consumer confidence in the newly privatized industry; and
• Consult with the Government of India as it establishes an administrative framework for diverse pension schemes.

There is a huge unmet demand for financial services among the poor. About 60 million poor households do not have access to credit, savings or insurance services. Increasing financial services to the poor could have broad, direct economic growth implications for the disadvantaged. It could also have ripple effects throughout the economy if spending power is increased for these multitudes.

The new strategy will:

• Improve access to micro-credit and financial services for the poor by contributing to policy, regulatory, and networking efforts that enable existing and new enterprises to flourish.

2. Agriculture
Agriculture is the country's biggest contributor to income and employment, but it has been virtually untouched by modern economic reforms. It employs 75% of the rural workforce and provides 70% of rural earnings. After strong annual growth for twenty years, its share of GDP has fallen since the first wave of economic reforms in the early 1990s. Growth issues have shifted from crop yields to counterproductive public subsidies and product diversity, marketing, and distribution. Although agriculture had been carrying the economy, without policy change it could become a drag on higher levels of growth.

The new strategy will:

• Restart US assistance to the agriculture sector, shifting from past production-oriented interventions of the Green Revolution, to policy analysis and advocacy on marketing and distribution;
• Establish and convene national forums and dialogues on promoting and sustaining Indian agriculture in a global economy; and
• Encourage the use of cutting edge technologies.

3. Fiscal Management
High annual fiscal deficits at the national and state levels in the 1980s were the root cause of the 1991 economic crisis. The driving force behind the shortfalls was a persistent gap between public revenue and spending. Rising costs for salaries, increased subsidies for agriculture and power, and higher fees for servicing public debt combined to create the deficits. Growing decentralization in 1992 made urban local governments responsible for providing public services and gave them the right to handle their own public finances. Delegating the authority relieved pressures from state budgets but further tied the economic health of the country to fiscal and public works managers in cities and towns.

Currently, a pattern of fiscal indiscipline and uninformed decision-making is affecting the quality of public expenditures and the ability of state and municipal governments to attract private investment for public works. Lack of good information is severely limiting broad discourse on spending priorities and accountability for public actions. Major structural weaknesses in public institutions have, at times, resulted in financial crises and near insolvency. In such scenarios, the public sector budgets for health, education, sanitation, drinking water, irrigation, roads, and other social services become victims of other pressing needs. This often cuts services to those who need and use them most: the poor.

The new strategy will:

• Support specialized fiscal analysis units in selected states to build competence, provide the ways and means for forecasting and analysis, and demonstrate models of effective fiscal management;
• Improve the tracking and reporting of public expenditures in selected state government treasuries;
• Promote dialogue at national, state, and local levels to share successful methods and practices in fiscal management;
• Improve the function of local governments by promoting financial discipline, and improving management information systems and tools for informed decision-making;
• Develop markets for long term debt; and
• Facilitate an open and timely process of fiscal decentralization from state to local governments.

4. Economic Reforms
Building momentum and garnering support for new economic reforms may be the greatest challenge in this area of the strategy. Indians are wary of a private sector that, in their view, pursues profits over broader welfare. Few domestic reformers have expressed a conviction that private sector investment and profitability are critical to expanded prosperity.

The new strategy will:

• Stimulate public dialogue about the long term benefits of reform by helping gather, analyze, and disseminate financial trends and forecast potential outcomes of changes;
• Assist existing government reform efforts aimed at encouraging productive interaction and information sharing between public administrators and civil society on economic policies and topics;
• Explore uses of information technology to link the public to progress in social and public services that demonstrate the benefits of economic change; and
• Advocate for and advise state and municipal governments on increasing social sector investments in education and health by using savings realized from fiscal deficit reductions.

Health
Sustainable poverty reduction and economic growth are linked to investments in social services such as health care. Access to quality care and preventive health education gives the poor a greater ability to influence their socio-economic destinies. A basic premise for pursuing economic growth is to free up public resources for social investments in areas such as health.

USAID has identified priority intervention areas that will promote a healthy, productive society:

1. Slow the growth of India's rapidly increasing population and protect the lives of mothers and children;
2. Stem global-level disease threats, particularly HIV/AIDS; and
3. Integrate health services and nutrition to improve child survival.

1. Reproductive Health
India's population of more than one billion is growing at 1.9% per year. Experts project that the population will reach 2 billion by 2070 if allowed to continue on its current course, a phenomenon that would severely stress the country's natural resources, infrastructure, and chances for sustainable economic growth. The maternal mortality rate is high: one out of every 75 women dies in childbirth, and the gender ratio of the population is 949 females per 1,000 males.

The new strategy will:

• Expand USAID efforts in north India, where more than 200 million people live, to improve family planning and reproductive health services. The goals are to increase the use of contraceptives and birth spacing, ensure that trained health providers attend births, and provide prenatal vitamins to expectant mothers; and
• Increase the marketing of contraceptives and expand the role of the private and NGO sectors in this process.

2. Infectious Diseases
The country's disease burden is one of the highest in the world. It has major implications for national and global public health and the resources needed to prevent and battle diseases. Residents of urban slums are in worse health than the poorest in rural areas. With nearly 4 million HIV positive people, infection rates are on the cusp of exponential growth. A third of the world's tuberculosis cases are in India, and although polio immunization has been widespread, the virus still persists.

The new strategy will:

• Continue to help limit the transmission of HIV/AIDS among high-risk groups, such as truckers, sex workers and their clients in Tamil Nadu and Maharashtra, and expand prevention activities to other states;
• Integrate HIV/AIDS prevention activities in urban areas into other health services and food aid;
• Continue to support India's efforts to eradicate polio and expand activities to treat tuberculosis in selected states; and
• Use family planning service sites as venues for immunizing infants and young children.

3. Child Survival
Child survival rates are low, especially among the disadvantaged. One out of every 11 children dies before age five; half of India's youngest citizens are undernourished, making them more vulnerable to severe illness. Measles, pneumonia, diarrhea, and tetanus are preventable and curable illnesses, but they remain the primary killers of children in India. Child death rates are higher for girls. There has been demonstrated success in improving child survival rates. With increased resources for health and a more prosperous society, there can be more victories.

The new strategy will:

• Continue to feed daily 8 million of India's poorest people, particularly mothers and young children, preventing the severity of some illnesses with better nutrition;
• Integrate food aid with basic health and education services such as providing immunizations and promoting breast-feeding and neonatal health; and
• Expand health and nutrition assistance into urban areas, beyond the village settings where it primarily has been based.

Disaster Preparedness and Response
India is prone to natural disasters, which often disproportionately affect the poor and marginalized segments of society. Disaster preparedness will help protect India's most vulnerable: those who do not have the resources to replace belongings or pay for basic needs following disasters.

Intense population pressures and urban sprawl have forced people to live on marginal lands or in cities where they are at greater risk to natural disasters. Recurring earthquakes, cyclones, floods, and droughts threaten millions of lives and cause large financial, infrastructure, crop, and productivity losses. The Orissa cyclone in 1999 and the Gujarat earthquake in January 2001 together killed 27,000 people and left more than 8 million homeless.

The experience of the Orissa and Gujarat disasters has demonstrated that there is a good basis for cooperation between international partners and Indian entities. Interest is high in system-wide disaster preparedness. All concerned want to safeguard the people and institutions of the world's largest democracy. The approximately 2 million Americans of Indian origin have a special interest in this issue.

The new strategy will:

• Assist in disaster prevention and response planning and management at the center, state, and community levels;
• Provide opportunities for American public and private disaster experts to meet and exchange ideas with Indian community leaders and organizations;
• Ensure that food and life-saving assistance for the needy are provided during natural disasters; and
• Facilitate the reconstruction of affected disaster areas in ways that minimize future human and infrastructure losses, as well as ways that ensure equitable responses that benefit the poor and other vulnerable groups.

Energy and Water
Sustainable growth depends on reliable energy supplies and a well-managed natural resource base. One of the biggest threats to long term prosperity is a lack of water. Progress has been made in cleaner energy development, more efficient energy use, and pollution reduction. However, low cost-recovery for electric power, poor water pricing, state subsidies to the power-hungry agriculture sector, and inefficient practices and equipment have resulted in an unreliable power system, crisis-level water shortages, and huge state fiscal deficits.

Current financial losses in the power sector total billions of dollars annually. State utility bailouts come from state governments that can ill afford them. These subsidies siphon off funds that could be used for health and education. The mostly public infrastructure and financing of power must be reformed to promote dependable and self-supporting services. India recognizes the need to address these problems and reform has begun in some states.

Good power service is linked to effective water use in cities and agriculture. Over-pumping by farmers, who drill for water without limits when inexpensive electricity is available, is causing a groundwater shortage. In the cities, consumer demand for water cannot be met, health problems are erupting as a consequence of aging infrastructure, and fees for services do not cover costs. The power cost of water delivery to customers is as high as 70% of the total operating expenses of already cash-strapped water utilities.

USAID will focus its environmental assistance on power distribution reform and the link between efficient energy and water use.

The new strategy will:

• Improve cost-recovery for electric power by assisting with better metering, billing, and collection for services;
• Demonstrate and encourage wider use of efficient and lower-polluting power distribution technologies;
• Foster private and cooperative approaches to providing services to village customers;
• Assist farmers, communities, and utilities with water conservation methods;
• Facilitate state policy reforms that enhance the quality of municipal water services and generate local resources to sustain improvements; and
• Introduce innovative and energy efficient approaches for the planning and management of urban water and sanitation systems.

Opportunities for Vulnerable People
India's poor, particularly its women and children, struggle for basic needs and are more vulnerable to abuse, violence, disease, and death. Another wave of economic reforms could further stress marginalized people until the benefits of higher productivity and stronger social institutions reach them. Lower-priced foods, better health services, clean and adequate water supplies, and chances for personal growth through education and new enterprises can change the lives of the poor significantly. Women and girls, who are traditionally deprived of equal status with males, could be denied a prosperous future without help.

Targeted assistance can alleviate some of the negative effects of economic reforms for India's 300 million poor. The reforms may have negative consequences in the short term for vulnerable groups, so it is doubly important to ensure that mechanisms exist to protect the poor during the reform process. Helping authorities implement existing laws and equality provisions of the constitution, and boosting participation in government decision-making, will strengthen India's democratic institutions.

1. Education
Universal basic education, key to India's educational reform movement, gained momentum in the 1990s with increased in-country political support and international community involvement. The number of primary schools has increased, girls' enrollment has risen and overall dropout rates have been reduced. Still, fewer than half of India's women are literate compared to nearly 70% of men. Estimates of the number of out-of-school children range from 59 million to 110 million. India's education challenges are widespread and diverse and include teacher training, revised curriculums, better facilities, and more textbooks.

The new strategy will:

• Boost enrollment and retention of out-of-school children, especially girls, in primary schools;
• Improve quality in alternative schools that "bridge" out-of-school children (such as dropouts and child laborers) back to mainstream education; and
• Encourage public and private interest in using information technology to improve teacher quality and student learning in different settings.

2. Administration of Justice
One of India's most recognizable strengths is its independent and well-regarded judiciary. However, the legal system is hampered by critical problems that often affect the poor most. Backlogs total as high as 28 million cases. Case processing times are exceedingly long, effectively denying justice to those who need the system's protection. Too many citizens charged with minor crimes spend lengthy periods in jail awaiting trial. Legal literacy is low, and there are few mechanisms for legal aid.

The new strategy will:

• Increase legal awareness among the poor, and awareness of the availability of legal aid, particularly among women and other vulnerable groups;
• Facilitate well-informed political and public dialogue about rights and protections to stimulate advocacy on behalf of the disenfranchised; and
• Improve access to justice by supporting stronger community-level legal systems, training for justice sector personnel, and court management improvements.

3. Equity
Discrimination against women and girl children is still entrenched in India. Violence against many women and girl children is widespread, and many females are kept from educational, health, and workplace opportunities that would raise their standard of living. Women are under-represented in elective office and government. Self-employment, under-employment and low wages characterize women's work. Micro-credit programs continue to target women and other vulnerable groups, but few effective programs exist to demonstrate how to develop enterprises. Without other economic choices, victims of trafficking and prostitution are often forced back into the sex trade. All-women law enforcement units and family courts identified to handle domestic abuse and violent crime cannot keep up with workloads and effectively protect their clients. Women's associations and advocacy groups are working to address these issues but need substantial support.

The new strategy will:

• Help India combat trafficking of women and children;
• Support and disseminate cutting edge research on emerging issues affecting the status and role of women and children, e.g., child abuse, inheritance laws, labor practices, economic costs of violence, and family safety; and
• Develop and introduce innovative social and financial services for high-risk groups, e.g., HIV/AIDS affected persons, child laborers, and victims of violence.

Cross-Cutting Themes in the New Strategy
In addition to the above five areas of concentration, the strategy will emphasize five themes that cut across the portfolio. The cross-cutting themes are: governance, gender, urban issues, partnerships, and cutting edge technologies.

1. Governance
India's ability to sustain the momentum for economic reform and to lift increasing numbers of its population from grinding poverty will depend on effective governance. The strategy will consider more effective governance, where appropriate, as a tool for ensuring the intended achievements of various strategic objectives. For example, governance interventions will be used in the economic growth strategic objective to ensure that there is a sustained level of public awareness about the issues surrounding economic reforms and an increased level of participation in state economic decision-making. In the area of disaster mitigation, interventions will include work on promoting stronger public awareness and demand for better building code enforcement and, as needed, support for draft legislation and administrative directives.

2. Gender
India has the largest concentration of poor women and girl children in the world. Poor women and girl children bear the brunt of the most severe and widespread socio-economic problems constraining India's development. During the new strategy period, attention to the needs of poor women and girl children will be strengthened.

The strategy will seek creative ways to make gender issues an integral part of the program. This will be facilitated by the development of a discrete gender strategy, incorporating appropriate sectoral targets, and the inclusion of a new strategic objective that targets opportunities for India's vulnerable people, of which poor women and girl children represent the largest proportion.

3. Urban Issues
As India urbanizes, the development challenges of its cities increase. Urban issues will be a theme throughout the portfolio. The ability of cities to attract investments for public infrastructure is a key part of the economic growth program. Cities and their environs will be targets for disaster prevention activities and an essential part of rehabilitation efforts. Urban sites will be a venue for HIV/AIDS prevention, integrated health services, and food aid. Improving health and the quality of people's lives by upgrading municipal water and sanitation services will be one of the focuses of the environmental program. Urban residents will be targeted for activities that promote education for poor girls and out-of-school children, and legal reforms that foster rights.

4. Partnerships
USAID India has a long history of cooperation with local and international groups in the design and implementation of programs. During the new strategy period, USAID will continue efforts to strengthen local institutions and promote partnerships among Indian and US institutions in support of India's sustainable development. Some of these partnerships will be implemented through traditional implementation arrangements, while others will be implemented through a Partnership Fund (described below).

5. Cutting Edge Technologies
The successful application of cutting edge technologies, including but not limited to information technology, can provide fresh, new approaches to solving development problems. Systems that provide disaster-affected communities with information on government and private sector resources available to assist them recover from disasters are just one example. Incorporation of cutting edge technologies into USAID's program as a cross-cutting theme will ensure that it remains alert to opportunities to identify and promote appropriate technologies in achieving its objectives.

Geographic Focus of the New Strategy
In response to increasing levels of devolution of authority and responsibility from the national to the state level, much of the focus of the new strategy will be at the state level. USAID will, as appropriate, target and coordinate assistance at the national level, especially for relevant macro-policy interventions at the sector or cross-sectoral level. Geographic focus by state will vary by sector, though USAID will encourage synergy among all elements of the strategy. The criteria governing the final selection of specific states include:

• Level of socio-economic development, with emphasis on states and districts with the greatest unmet needs;
• Perceived demand for the proposed assistance;
• Local partners in government, the private sector, and civil society;
• Reform progress in targeted sectors;
• Ability to collaborate with, avoid possible duplication of, and leverage other international donor resources;
• Demonstration potential;
• Susceptibility to natural disasters;
• Natural resource base, especially water; and
• Level of urbanization or concentrations of rural areas.

Based on these preliminary criteria, the greatest opportunities for synergy in the program will likely be in the states of Uttar Pradesh, Jharkand, Rajasthan, Andhra Pradesh, Karnataka, and Uttaranchal. Exploring the benefits of program synergy does not signal a concentration of USAID's investments but underscores the need to seek creative ways to maximize both impact and demonstration effect. If possible, state level social investments will be paired with fiscal reform target states. This will enable USAID India to closely monitor strategic assumptions on expected reform benefits such as increased and improved social spending.

The Long Term Vision
Although the strategy is intended as a five-year exercise covering the period 2003-2007, it also lays out a longer term vision in consonance with international targets for poverty reduction. The next two strategic periods, covering 2008-2012 and 2013-2017, are intended to be the time frame during which the US and India complete their bilateral development agenda.

The long term vision of this strategy is to help ensure that India and the US complete that agenda during the coming 15 years and that an enduring entity is established to address remaining developmental concerns. During this strategy period, a Partnership Fund will be established to test concepts and operating principles that highlight the growing linkage between entities in the US and India.

The Partnership Fund will probably be an entity in India with participation and financing from USAID, the private sector, and the non-governmental sector. The Partnership Fund will seek new and creative methods of delivering development assistance and will be a testing ground for a larger and more permanent Legacy Foundation.

Toward the end of the new strategy period, preparation for the establishment of a permanent Legacy Foundation will begin. Such a foundation might be endowed by transforming current GOI debt repayments to the US into principal contributions that could be matched in part by the US Government or other contributors. This would require US Congressional action, as well as broad US executive branch concurrence.

The establishment and testing of the Legacy Fund will be the centerpiece of the next strategy, during which the Legacy Fund will position itself to take on the responsibility of administering any remaining unfinished development agenda items during the last five years of the 15-year vision.

Financial Resources and Implementation Arrangements
The financial resources necessary to implement the new strategy will be derived from three funding sources available to USAID: Development Assistance, Economic Support Funds, and Title II of the Agricultural Trade and Assistance Act of 1954 (PL 480). The new strategy has been designed to accommodate a high and low funding scenario. Depending on the availability of funding, the new strategy will be able to program total amounts from these three accounts ranging from $180 million to $222 million per year (approximately 50% of this total will be from PL 480 resources) for the base year of 2003. The budgets for the years 2004-2007 will be inflated at approximately 2.5% per year.

Activities during the strategy will be implemented through a mix of implementation arrangements ranging from traditional bilateral agreements, in which the GOI and USAID jointly administer the activities, to more experimental approaches such as the Partnership Fund. As new mechanisms are tested, USAID envisions that an increasing number of activities will fall outside traditional arrangements, reflecting both the transformation in India's status and in the relationship between the US and India. During the strategy period, USAID expects that the Title II program will begin the process of preparing for graduation.

The proposed strategy does not currently envision support for the state of Kashmir. Should conditions favor such assistance, adjustments would need to be made to the strategy.

Conclusion
This concludes a summary of the major elements of the proposed strategy. Greater detail on each proposed strategic objective is found in the sections that follow.

Accomplishing the activities outlined in this strategy will be an immense challenge for USAID and its partners. The scale of India's unfinished development agenda, and the importance to India and the world of completing that agenda sooner rather than later, cannot be overstated. The US has stood with India in addressing these issues for over five decades. Remarkable accomplishments have been realized. The finish line is in sight. With the adoption of this strategy, the US will be able to run the final lap of this tandem race as India reaches for the golden future, which is its due.