Rainfed areas are crucial for India’s agriculture, covering 50% of the total farmland and contributing 40% of the country’s food production. In recent years, the adverse effects of climate change have been found to be exacerbating the complex problems in vulnerable rainfed areas. While climate change affects many aspects of the environment, its impact on water resources is often swift and apparent, with far-reaching consequences for ecosystems, human well-being, and sustainable development. In this context, water budgeting at watershed level and its management are crucial towards promotion of climate resilient agriculture in the rainfed ecosystems. Comprehensive assessment of water balance was attempted, estimating the demand from agriculture, domestic and livestock needs and availability of water in terms of groundwater recharge from different sources and effective surface water stored in an agricultural watershed falling in Siddipet district of Telangana state of India. It involved collection of data on population, land use, and estimating irrigation water needs for crops, humans and livestock, followed by inventorying surface storage structures. Further, water inflow, runoff, and groundwater recharge were calculated using standard methods. The water balance was then determined by subtracting total demand from total availability. The study revealed that the water balance improved significantly, shifting from a deficit (-1.18 ha-m) of pre-project phase to a surplus (+67.91 ha-m) during post-watershed development. Thus, this study revealed the effectiveness of soil and water conservation measures taken up as a part of watershed development project in enhancing groundwater recharge and effective surface water storage capacity leading to positive water balance. The study also evaluated the use of groundwater in terms of stage of development in the pre and post project scenarios. The study concluded that there is a need for controlling the over extraction of groundwater through crop diversification especially towards market driven, less water consuming high value vegetable cultivation based on water availability with active people participation along with awareness building, propagation of efficient water application (micro-irrigation) methods, group mode of irrigation, and conjunctive use of surface and groundwater, etc. for long-term water security in the watershed.