The needs of reservoirs grow with population, standard of living, urbanization in the form of water supply, flood control, hydroelectric generation, navigation, recreation etc. Their development inevitably involves a substantial degree of environmental impact. The impact of reservoirs, on an average, increases in an exponential way with their size. If the marginal net benefit were assessed at the margin of the capacity, many giant reservoirs for primarily hydroelectric purpose would not be justified when the negative environmental impacts are counted. The reservoir size should not exceed the size whose marginal negative environmental impact becomes more than that of any alternative means elsewhere that can provide the same level of incremental gain in the global objectives. This is called the least marginal environmental impact rule. In order to make such a rule operational, many alternative means should be made available that can be sought along a holistic approach to water problems, that is, integrated water resources management, where a reservoir is only one of many options to be chosen.