"To have this happen in the country of your birth is upsetting," said Mehta, whose movie lost to Germany's "The Lives of Others" in the race for the Best Foreign Film Oscar.
"It's a bit like being rejected by your parents. But when I realised those DVDs were all pirated copies, I figured the more copies they burn, the better," she told the Toronto Star.
Mehta's original plan to shoot "Water" -- which deals with the the plight of Hindu widows in the 1930s -- at Varanasi in India in 2000 had to be scrapped in the wake of protests by Hindu groups. The movie was later shot in Sri Lanka with a new cast.
The director said protestors in India were now claiming that "Water" is anti-Gandhi for reasons that were beyond her understanding.
Mehta said she was feeling great despite not winning an Oscar and thanked Canada for nominating "Water" for the Academy Awards. She also said it would have been great had India supported her film.
Expressing her gratitude for the "freedom and support" she got in Canada, Mehta said, "It was an exhausting and exhilarating week and I am feeling great.
"Any sense of disappointment about the result was momentary, because there was such a tremendous feeling of recognition, goodwill and support for the film all around us."