Complementarity between conservation and productivity objectives makes watershed development attractive in semi-arid areas. A potential trade-off with poverty alleviation arises however because watershed development may benefit landholders while harming landless people, particularly herders and women. India has a history of highly innovative watershed projects in which downstream landholders share benefits by compensating landless people upstream for providing an environmental service. Most current projects, however, take alternative measures that ignore the issue of environmental services. Evidence from 70 villages in Maharashtra suggests the presence of poverty alleviation trade-offs, highlighting the potential value of more explicitly addressing compensation for environmental services.