Groundwater, unlike surface water, is expensive and relatively scarce and hence should be used to grow crops that are responsive to protective irrigation, require less water and are remunerative. Sellers and buyers of groundwater have put large areas under paddy, a water-intensive crop. This needs to be disciplined through effective groundwater institutions. Groundwater literacy has to be promoted by educating farmers on the pros and cons of overexploitation. For farmers who do not own wells, one way to enable access to water is through group investments in well irrigation. This would require provision for institutional credit for such groups and energization of pumpsets. This will provide an environment of sharing available groundwater and the associated costs. The functioning of groundwater markets in hard rock areas of the semi arid dry zone of Karnataka show two types of arrangements. In the first one, irrigation services are provided on demand and water charge is levied on hourly basis. In the second one, irrigation services are provided for the whole crop season, and cash equivalent of a fixed share of crop produce is paid as water charge. For water buyers, crop sharing arrangement yielded higher returns than that under hourly rates. Comparative analysis of allocative efficiencies of input use for sellers and buyers in groundwater markets show that water buyers obtain higher economic efficiency in water used for crop production than sellers, though both buyers and sellers are growing water-intensive crops such as paddy.