Because farming can be done with the rainfall if you catch it and hold it for your plants, it still flows to creeks and rivers. Dams on watercourses are for erosion prevention and temporarily holding the water. Those downstream should be thankful for flood mitigation, and should use their rain instead of letting it flood others lands. Its not a higher moral standard if those at the top of the watershed are trying to use their rain, its then the same moral standard.
I did say temporarily because I don't think anyone short of govt can afford to build a truly waterproof dam, and that all dams on watercourses do not stop those below from getting their share. I think those at the bottom of the watershed should not expect that those at the top of the water shed, to not slow the water flow. They must understand that water users are a queue. Those at the top of the watershed have first bite. Even if you could make a waterproof dam at the top of the water shed, there is all the rainfall, and runoff from below the dam, and the dam can only hold so much before it flows anyway. If it is not flowing it is still soaking out to the subsoil and downstream via that mode of transport.
I think the complaint about not having water downstream of a dam, is because they don't have a dam, and don't have other earthworks to make use of their rain.
Do you have Sushi Train where you are? A restaurant where sushi runs on a conveyor around the restaurant and people pull off the sushi they want as it comes past? Its a similar concept to a river. I can sit just outside the kitchen and have first bite at the sushi. I can grab the plates as they come out, but eventually I can't eat any more. So then the plates go down anyway. Imagine then that there is enough sushi made to feed everyone but they only come out for an hour a day. So I fill the table in front of me as they come out (a dam) for use when the sushi is not made and does not circle anymore. The guy further down complains when the sushi stops going around the track, because I have some sushi. He could have grabbed some sushi for when it is no longer made, but he did not.
Its not immoral to plan ahead, I think its immoral not to plan ahead.
The question of can you dam enough water to stop the water flow downstream is better answered with why is it possible? Where can you increase rainfall by reforestation? Where can you increase the water held by the soil and plants so that the stopped flow resumes. I think we have plenty of rainfall to do it all, and we can increase the rainfall. Pressure on those lower down in the watershed is a good thing as it encourages an end to the wasteful methods they currently use. I also think that they should understand "their" water comes at the cost of land destroyed further up the watershed. They have to pay the cost of restoration even if it means less water and changes to their practices.
Emmerson White is right, that the offsite input, and the offsite cost should be evaluated, but is wrong that it is only for those at the top of the watershed, its also for those at the bottom of the watershed.