Andhra Pradesh Government is constructing an irrigationdam across Palar at Ganeshpuram, near Kuppam, Andhra Pradesh which has caused agitation among the people of the five northern districts of Tamil Nadu, namely Vellore, Kancheepuram, Tiruvannamalai, Thiruvallur and Chennai benefited by the river. Tamil Nadu Chief Minister Jayalalitha voiced her opposition to this proposal and said "Palar is an inter-state river and was also one of the rivers mentioned in Schedule A annexed to the 1892 agreement which is in force as per Interstate River Water Disputes Act 1956. As per a clause of the agreement, the upstream state should not build any new dam or any structure to obstruct, divert, or store waters of the rivers without the consent of the downstream state".
The average rainfall in entire Palar river basin is low. This river basin used to suffer from frequent droughts. There has been no full scale flow for the past 10 years.However, Karnataka and Tamil Nadu have mitigated frequent recurrence of droughts by developing innumerable minor and medium irrigation tanks. This has improved the availability of water for surface as well as ground water irrigations. As per the wet land atlas of India., the manmade wet lands are covering extensive area (3% to 5%) in the districts of Karnataka and Tamil Nadu covering Palar river basin. Whereas the Palar basin in Andhra Pradesh is not well covered by wet lands which implies that the river water usage in Andhra Pradesh is not up to the mark compared to Karnataka and Tamil Nadu. In the year 1892 when the Palar waters agreement was made, Tamil Nadu and Andhra Pradesh were part of then Madras Presidency. The 1892 agreement on Palar river water sharing is applicable between Karnataka and Andhra Pradesh since the boundary line in Palar river basin between Madras Presidency and Mysore kingdom is now part of Karnataka and Andhra Pradesh states.
A documentary called "En Peyar Palar" produced by Social Action Movement and Water Rights Protection Group, Chengalpattu and released on 30 June 2008 chronicles the plight of the river from its origin in Karnataka till it joins Bay of Bengal. The 85-minute documentary delves into how activities such as sand quarrying and discharge of industrial effluents are sucking the life out of one of Tamil Nadu’s prime sources of drinking water. It was directed by R.R. Srinivasan.
This river is so important for irrigation in the north and south Arcot districts of Tamil Nadu, but it flows a meager distance of 50 kilometres (31 mi) in Andhra Pradesh, where the Palar river had been seen dry for almost 20 years. Palar has been home for mud robbery and other illegal activities.