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In India, particularly in semi-arid regions, groundwater levels are declining at alarming rates due to over-exploitation and the sustainable exploitation of groundwater resources is in deep crisis. There is little or no information on groundwater sustainability indicators, which can signal towards the challenges in water management. In this study we downscaled an entire watershed into three zones based on the different hydrodynamic behaviour recorded at the borewell scale. A process-based simple, multi-parameter linear auto-regressive model was developed to predict groundwater levels, which uses recharge, groundwater withdrawal and irrigation return flow as input variables. A comprehensive and predictive long-term groundwater balance is used as a state indicator to evaluate the sustainability and management challenges in the watershed. Two groundwater withdrawal scenarios were designed to assess the impact of groundwater withdrawal on the groundwater balance. We found that geological heterogeneities play a crucial role in controlling groundwater fluctuations. The storage change in two different groundwater withdrawal scenarios shows gradually declining groundwater storage in both scenarios. A long-term assessment of the groundwater balance helps to analyse the state of the groundwater system and to locate priority zones for watershed interventions. (C) 2014 Elsevier B.V. All rights reserved.