This study aims to assess the hydrological response of the selected study sites in the Hani Rice Terrace to climate change. Subsequently, it sets a process for analyzing a complex, interconnected hydrological system with varying topography and containing different landscape elements across different reaches for enhancing livelihoods of terrace communities. In the current analysis, instances of scarcity and periods of concentrated availability have been noticed, both in the upstream and the downstream reaches, under historical and future rainfall scenarios and demand changes. Reconciling water availability with equitable access has been identified as the most important issue that needs policy formulation and institutional arrangements. In this research, water scarcity index as a tool is used to idenity and understand threats to water security and is found to be an appropriate way of looking at overall changes in demand and supply. The analysis is conducted with available spatial data derived from satellite and global data sets complimented with field surveys, and estimates are expected to be representative. It is seen that the water scarcity index can also be used to identify periods in which action is required and show if interventions can really help solve a given problem in a simple manner.