This paper makes an attempt to assess the water sector under scarcity conditions in the State of Rajasthan. It adopts the criteria of physical, economic, financial and equity performance across sub-sectors. The assessment brought out clearly that no indicator has shown satisfactory performance in any of the sub-sectors. Though the urban drinking water sector is relatively better in performance, a lot more needs to be done in order to bring it to the threshold level of economic and financial performance. The huge expenditures incurred in this sector are not going towards real investments that would improve the performance of the sector. Despite the fact that the water sector
(except groundwater) is in the hands of the government, equity goals are not achieved. An urban and rich bias is prevalent as far as access to water and public distribution of water. Apart from suggesting some short-term measures to meet the immediate demands, this paper argues that institutional reforms are critical for sustainable water resource management under scarcity conditions.