Agriculture and allied activities support livelihoods of nearly two-thirds of India’s rural population. In recentyears, land based livelihoods of small and marginal farmers are increasingly becoming unsustainable, since their land has notbeen able to support the family’s food requirements and fodder for their cattle. As a result, rural households are forced tolook at alternative means for supplementing their livelihoods. The study was taken up in the Gadag district which has beenselected to implement the Sujala-III watershed project. In order to study the existing livelihood system before the interventionof project the socio-economic study was conducted in selected micro watersheds. The tabular analysis and gini coefficientwas used to analyse the existing livelihood system in study area. The marginal farmers obtained average income of ` 10235per year from agriculture while, non-agriculture labour, agriculture labour, diary, sheep and goat rearing were also predominantsubsidiary occupations for them. In the case of small farmers, although agriculture was the main occupation with an incomeof ` 20107 per household a relatively stable income was obtained from diary compared to agriculture labour and nonagriculturelabour. Similar results were found with semi medium, medium and large farmers where the main source of incomewas from agriculture and was relatively unstable. The gini coefficient with respect to sub-watersheds ranged from 0.32 to0.38 and the same ranged from 0.11 to 0.16 in case of farmers categories.