Groundwater depletion is experienced in several districts of Tamil Nadu state and Coimbatore district is heading in that direction. The average well failure rate is 47% for open wells and 9% for bore wells. The total cost of depletion for new wells varies from Rs 1,999 per ha to Rs 90,975 per ha. The electricity subsidy to the farmers has varied from Rs 22,621 per ha for coconut growers to Rs 25,498 per ha for banana growers as on 2004. The cost of irrigation per cubic metre (m3) is less on large farms. The average net return with free electricity varies from Rs 0.14 per m3 to Rs 1.38 per m3 and is drastically reduced when electricity is priced at an economic cost, i.e. Rs −1.15 to Rs −0.14 per m3. The shift in cropping pattern towards high value crops helped the farmers to some extent to bear the cost of externalities arising out of depletion. The social cost caused by groundwater overdraft is about Rs 554.3 million, which may increase when the well density increases further. Suggested policy options are to change the cropping pattern to less water-consuming crops, to invest in watershed development activities, to change inefficient pumpsets and to adopt well spacing norms.