In 2002, the Indian government initiated a broad range of programmes that proposed market-based reforms for water. Inspired by World Bank's policy ideas, the processes have often led to conflicts in India. The conventional wisdom on water sector policies in developing countries insists that international structures constrain and determine state behavior in initiating policy change. However, I argue that changes in urban water policies in India is, primarily, not a case of sole dominance of international financial institutions and imposition of external preferences; rather they also reflect the new global realities of transformed 'state interests and institutions' emerging in India. My argument is, while external engagement in water sector continues, the developments of the federal state in an globalised era of political and economic interchanges has led to new equations in the central-local relations. Within the new governance structures emerging in the decentralized context, the sub-national units emerge as significant influences on the speed, pace, and extent of enactment and implementation of global water policies in India. The adoption of national and State water policies, since 2002, and implementation of 24/7 water supply programme illustrates my argument. To support my argument I draw on the policy transfer literature to explain global policy initiatives in water in India. I develop a framework based on theories of policy transfer and political economy of policy reform for a critical and systematic analysis on global policy transfer in the context of World Bank programmes in India. Using case study evidence of transfer to a single sub-national-state in India, and drawing out comparisons on design and implementation of two water supply projects, I provide critical insights on implementation of global policy ideas within local settings, undertaken by the sub-national political and policy elite in India. My findings highlight a coincidence of interests between sub-national policy elite and global actors in introducing market mechanisms in water, and thereby link global neoliberal restructuring of water to transformed state power and interests at domestic levels. The 'political economy of policy transfer' in water therefore contributes to the theoretical and empirical literature on water policy-making in an era of increased global exchanges.