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Abstract: Virtual water trade has been promoted as a tool to address national and regional water scarcity. In the context of international (food) trade, this concept has been applied with a view to optimize the flow of commodities considering the water endowments of nations. The concept states that water rich countries should produce and export water intensive commodities (which indirectly carry embedded water needed for producing them) to water scarce countries, thereby enabling the water scarce countries to divert their precious water resources to alternative, higher value uses. While progress has been made on quantifying virtual water flows between countries, there exists little information on virtual water trade within large countries like India. This paper presents the results of two MSc theses which quantify and critically analyze inter-state virtual water flows in India in the context of a large inter-basin transfer plan of the Government of India. Our analysis shows that the existing pattern of inter-state virtual water trade is exacerbating scarcities in already water scarce states and that rather than being dictated by water endowments, virtual water flows are influenced by other factors such as “per capita gross cropped area” and “access to secure markets”. We therefore argue that in order to have a comprehensive understanding of virtual water trade, non-water factors of production need to be taken into consideration. [Copyright &y& Elsevier]