Watson, who has had extensive experience of playing in the sub-continent thanks to the Indian Premier League (IPL), believes that India have the firepower to go the distance on their home turf. Australia are scheduled to take on the hosts in their final group match in Mohali on March 27.
"I think India will be the toughest team because it's in their home conditions," Watson was quoted as saying by cricket.com.au on Wednesday.
"They know their conditions better than anyone and have performed well in big events at home."
Watson believes that the Indian team have quality players in every department. "India have a good all-round team; their batting has firepower all the way through, bowling-wise, their spinners are world class and they have some good quicks," the 34-year-old said.
"Ashish Nehra is bowling really well and (Jasprit) Bumrah has been a great find for them. They have a really well balanced team so I think they will be a big challenge."
India have dominated Australia in the shortest format recently, having won 3-0 Down Under in last month's T20 series.
India have won the tournament once in 2007 and in 2014 they made it to the finals but lost to neighbours Sri Lanka by six wickets.