AbstractIn this study, basic principles of the rotational irrigation water delivery system of Pakistan (i.e. the warabandi) and the performance of the warabandi system under current socio‐economic conditions have been investigated from a farmers' survey completed from 154 farmers located on five watercourses of the lower Indus River Basin. It is shown that irrigation water allocation based on very limited criteria does not give much incentive to the farmers for improving agricultural income. Also, the survey results suggest that the productivity of limited irrigation water could not be maximized under the warabandi system. We have therefore suggested the basic principles of the warabandi system should be revised by making them suitable for the current socio‐economic conditions. We propose that the existence or non‐existence of fresh groundwater resources along with other critical variables should be taken into consideration when making canal water allocation decisions. A framework to allow distribution equity and efficiency in water allocations – such as considering the gross area of a tertiary canal, sensitivity of crop growth stage to water shortage, crop value, bias of allocation towards most water use efficient areas, the potential losses from water deficiency, etc. – should be developed as a tool to improve water productivity for Pakistan and for individual farmers. The contribution of groundwater in the farmers' income from agriculture and the economic value of irrigation water have also been estimated. Copyright © 2009 John Wiley & Sons, Ltd.