A dynamic optimization model covering twelve watershed projects of the states of Maharashtra and Madhya Pradesh in India are considered. Existing watershed project development guideline does not have specific target to reduce the local migration. It is a big social problem in India, especially for our selected study areas. The existing watershed projects in India do not specify or ascertain minimum level of income generation which is the key for the success of such activities. To overcome these drawbacks the present paper attempts to estimate the optimal income level that each watershed should generate primarily to stop or reduce local migration. It also aims to provide long term sustainability to the watershed projects of our study area by improving the income level of the beneficiaries. In this study, the issue of migration from the watershed areas has been linked to the reduction of wage rate of the workers associated with the agricultural field in and around the watersheds. It has been observed that the average wage rate is highly inversely correlated to the rate of labor migration. Lower the wage rates in the region higher the migration rate and vise versa and the watershed projects have no control on that migration process. Finally some policies are prescribed to achieve long term sustainability of the watershed and also to reduce local migration.