There has been substantial focus on water resource development in India, but with emphasis mainly on the technical side. Development of institutions to manage the interactions and arrangements necessary has received little attention. The study uses the new institutional economics framework and governance theories to probe local institutions in water resource management. 29 institutions and 450 households are covered and the data analysed through univariate Anova and multivariate Tobit regressions. The results show the importance of technical, organizational and political governance provided by the institutions. Achievement of efficiency, equity, environment and finance objectives depends substantially on lowering transaction costs through advancing means such as clarity of objectives, good interaction, adaptability, appropriate scale, and compliance.