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The development of grass root level institutions is central to sustainable agricultural development, inclusive of healthy natural resource base and redistribution of income in favour of resources poor farmers to enable the local communities to be part of the whole in the matters of planning and execution. Various watershed management programmes have shown varying level of success based on the procedure of field implementation of such project and level of people’s participation. Many projects have drastically failed despite the water availability during the active rainfall periods whereas some project were quite successful despite continuous monsoon failures in a row. Scenario analysis of some successful watershed management programme and lessons learnt from the past experiences based on the field surveys, interviews of individuals, farmers, village leaders, development officials of the government etc. have been analyzed and inferences have been drawn. Results from the study of some of the famous watershed development programs implemented in the past in India, lead by dedicated grass root workers; revealed that the process and the manner in which activities were implemented are as important as the activities of the people. It was observed that the successes and the pitfalls in the development of peoples centered/farmers led participatory watershed management in India depend on mainly four factors namely; whole hearted people’s participation, the most sincere and dedicated contribution of an honest leader of people and a thorough and comprehensive analytical frame work for project planning and implementation either by any individual or by the government. An institutional framework incorporating general trend of decentralization and peoples participation is proposed for effective implementation of such program. In the present study a new model for the overall development and management of resources of the rural agrarian economy of India has been envisaged. Such grass root level institution, called Village Development and Management Organization (VDMO), will be working in close association with rural masses and will have responsibility to protect their interests. It is a three tier developmental model for local self government based on the decentralized developmental principles. This also is a closed chain business model for earning profits using local resources with sustainability by all beneficiaries. It will create strong and transparent processes in local resources management, conceiving and field implementation of developmental projects, employment generation ventures, capacity building and bringing in enormous happiness without and socio-cultural or economic biases.