Many rainfed farming and watershed development programmes face problems in ensuring the long-term sustainability of activities. Comparative research into this problem has pointed to the absence of adequate farmer or community participation in activity planning, implementation and management as a critical issue. This need for greater participation is increasingly addressed though the employment of participatory research and planning methods — PRA/PALM. These methods, however, are not sufficient to ensure and sustain farmer involvement. They will only contribute to sustained participation as part of a structured planning process which includes the identification and support of local institutions which can take responsibility for implementation and the long-term management of watershed resources. The difficulty is that new local institutions may themselves be among the least viable and sustainable of project interventions. This is often because participatory ideals overlook the real social costs involved in collective action. This paper discusses the experience of the KRIBP project in evolving an approach to local institutional development in a tribal region in western India. It discusses problems and lessons learned, and suggests ways of improving performance by .reducing the demand for and costs of collective action in farming systems development.