Intercropping of groundnut is a common practice in Rayalaseema region. of Andhra Pradesh, where the rainfall received is not only low, but also erratic in distribution. Investigations made in finding out a suitable intercrop with groundnut, which can minimize water losses through runoff and can stabilize crop yields, revealed that intercropping of groundmit either with cowpea or with mixed pulses (redgram with cowpea and horsegram) in 15:1 ratio not only arrested the runoff, but also increased the total returns by 17.8 and 8.5%, respectively, over the sole crop of groundnut. The problem of water stagnation along the bund can be overcome by this system. Operational troubles which were in vogue with traditional contour bunding system can also be avoided.