Groundwater emerged as a major source of irrigation in India during the mid-1970s. However, a large expansion in well irrigation due to a massive rural electrification programme, government policies of promoting private tube well construction and large subsidies on electricity for agricultural use resulted in groundwater over-abstraction in many semi-arid and arid regions of India. In addition, most of the direct and indirect measures to regulate groundwater use have met with little success and have been largely ineffective in arresting groundwater over-exploitation. This paper reviews the institutional and market-based instruments that are now being advocated by scholars and practitioners as potential instruments for sustainable groundwater use. The review mainly focuses on research that examined the viability and impacts of establishing private and tradable water rights in groundwater and pro rata pricing of electricity for irrigation use as instruments to arrest the problems of groundwater over-exploitation in India.