Often, as a frantic response to problems of water scarcity and consequent hardships faced by both urban and rural communities, India has invested heavily in rainwater harvesting. Unlike investment in large water resource systems, these efforts, by and large, lack hydrological planning and sound economic analysis: research on the impact of local water harvesting/groundwater recharge activities in India is very sparse. This paper identifies six critical issues in rainwater harvesting efforts in water-scarce regions of India. First: there is no emphasis on potential local supplies and the demand they have to cater for: local supply potential is low in most water scarce regions, a fact compounded by poor reliability, and demand far exceeds the supply potential. Second: there are complexities in the economic evaluation of RWH, due to lack of scientific data on inflows, runoff collection and storage efficiency, beneficiaries, value of the incremental benefits generated and scale considerations. With higher degrees of basin development, the marginal benefit from water harvesting at the basin level reduces, while marginal cost increases. Third: in many basins, there is a strong ‘trade-off’ between maximizing hydrological benefits and improving cost effectiveness. Fourth: many water-scarce basins are characterized by wide disparity in demand between upper catchments and lower catchments, so that there is a trade-off in maximizing benefits of upstream water harvesting with optimizing basin-wide benefits. Fifth: in many water-scarce basins, local water harvesting merely divides the hydrological benefits rather than augmenting them. Finally, poor integration between surface water and groundwater systems, and lack of inclusion of natural recharge, ultimately leads to reduction in potential for artificial recharge in hard rock areas.