This paper discusses the use of subsidies for soil and water conservation (SWC) in the KRIBHCO Indo-British Rainfed Farming Project being implemented in degraded areas of western India. The rationale for, and effects of, adopting subsidies are summarised. Although both project staff and farmers agree on the importance of SWC measures, few farmers can afford the investment of time and money. This is largely because production in the area is so low that most farmers are obliged to seek off-farm work during the dry season. As this is when most SWC work is undertaken, there is a need to offset the opportunity cost to farmers of forgoing employment opportunities in order to implement SWC activities. Benefits arising from the use of subsidies include priming of savings and credit groups and a temporary reduction in annual migration levels. Disadvantages include possible lack of equity and low levels of sustainability. The paper concludes by discussing alternative funding arrangements including loans, differential subsidies and other incentives. It suggests that for private farmland, farm households are subsidised with fixed land improvement grants (rather than paying those who participate in the SWC work). Farmers and their hamlet members should discuss how the money would best be used. A fixed subsidy per unit area is proposed for communal land improvement and when watershed management is conducted on a village basis. A village work plan, based on the funds available, would be formulated by village groups in consultation with project staff.