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This study which was conducted in 1997 to explore the development of new public management (NPM) techniques in the health sector in Tamil Nadu and to describe the extent to which new organizational arrangements for the provision of health services have been adopted; assess the performance of these new service arrangements; and identify factors affecting the capacity of government to take on new roles. The study is one of a series of country-specific and sector-specific case studies. Underlying the overall programme of research were two implicit hypotheses. The first one was that NPM offers ‘universalist’ solutions, solutions which are said to be applicable in most countries and to most sub-sectors of government. In reality it seems likely that different solutions will be more ore less applicable depending on specific socio-economic, cultural and historical considerations. Reviewing the implementation of NPM in different countries and different sectors should hopefully make it possible to test this hypothesis. It seems that the ‘new roles’ expected fo government under NPM are ones to which it may be unaccustomed. They are also innately more complex than direct-service provision. The second hypothesis therefore is that government capacity to perform new roles may be a serious constraint on the effective implementation of NPM. This paper focuses on this hypothesis. The paper is structured as follows: in the next section a fuller definition of NPM is offered and key concepts such as capacity explained. The following three sections present case-study material from Tamil Nadu on three modalities commonly associated with NPM: contracting for services, regulation of the private sector and the establishment and operation of publicly owned, ‘autonomous’ organizations. Drawing material from each of these case studies the subsequent section considers the factors affecting government capacity to take on the roles implied by NPM. This is followed by conclusions.