The present study was conducted to assess economic impact of water logging and soil salinity and viability of reclamation of such degraded soils using subsurface drainage (SSD) system in Upper Krishna Project command area in Karnataka during the cropping year 2004- 05. It was found that, the cropping pattern adopted by farmers was more diversified before soil degradation whereas, after degradation, the farmers of degraded and normal soils allocated more area under water intensive crop like paddy ignoring the suggested cropping pattern. The production activities were highly limited on different degraded soils where, a large (55 to 83%) proportion of the total area was abandoned from production and thereby reducing cropping intensity in these soils. The crop yields in degraded soils were significantly lower over normal soils. The reduction in yield of paddy over normal soils was very high (between 50 to 67%) due to degradation and thereby resulting in negative returns. This reduced on-farm employment opportunities and led to labour migration to distant paces for livelihood. The MVP and MFC ratios implied that, majority of the resources used in affected soils was constrained by land degradation. The decomposition analysis indicated that, salinity depressed paddy yield (93.51%) during kharif while, water logging depressed (64.45%) it during rabi/summer. The Timmer measure of technical efficiency in paddy revealed that, the proportion of farmers in the high technical efficiency level were more in normal soils whereas, majority of them in degraded soils were operating in low technical efficiency levels. The Kopp measure of technical efficiency showed that, extent of excess resources used by farmers on all degraded soils were higher than were used in normal soils. The aggregate annual monetary loss due to loss in production for the entire command was estimated at Rs.201.10 crores. The economic viability of reclamation of degraded soils showed improvement in land use and cropping intensity, crop yield, input utilization and returns. Among 30 and 50 m drain spacings, pipe SSD system of singular type with 50m spacing at an investment cost of Rs.24,674/ha was found to be economically feasible and cost effective. The B-C ratio was found to be 1.56 for paddy–paddy rotation, the net present worth was high at Rs.1,76,518 and IRR of over 50 per cent at current cost (2004-05 prices) and a recovery period of investment in four years was observed.