Proposal targets 1.5 GW new small-hydro capacity in hilly regions soon.
Revival aims to strengthen grid stability and energy security nationwide.
Scheme addresses untapped hydropower potential and rural electrification needs efficiently.
The Union Ministry of New and Renewable Energy (MNRE) is planning to revive a small hydropower scheme that is expected to attract allocation in the upcoming Union Budget 2026, according to two officials familiar with the matter told Down To Earth.
Introduced in India in November 2009, the exclusive small hydropower policy was again revised in July 2014, offering a specific Central Financial Assistance (CFA) for projects, to encourage private sector participation through incentives, but was discontinued in 2017.
1 January 2026
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The scheme was discontinued due to budgetary constraints, prolonged project delays and a shift in government focus toward lower-cost and less complex solar and wind energy projects.
At present, there is no central programme supporting new projects, which are instead governed by state-level policies, as water resources fall under state’s jurisdiction.
A new central policy for reviving SHP projects in hilly and border regions may be introduced by the proposed programme. It aims to double India's installed hydropower capacity to 10 GW over the next ten years and add about 1.5 GW of capacity in the upcoming years.
Officials told Down To Earth that the proposal has been approved by the Expenditure Finance Committee. However, they stated that the programme is awaiting additional approvals, such as a Cabinet approval, before it can be taken into account in the upcoming budget cycle.
Why This Matters Now
Reviving small hydropower (SHP) comes at a time when India is looking to diversify its renewable energy mix beyond solar and wind, which remain intermittent.
According to an International Energy Agency (IEA) report, hydropower provides critical grid stability and flexible power, especially in remote regions. According to another report published by Ministry of New and Renewable Energy (MNRE) in 2024, India has about 21,133 MW of small-hydro potential, of which at least 5,000 MW has been developed, leaving around 75% of untapped capacity which is in Himalayan region such as Himachal Pradesh, Uttarakhand, Jammu & Kashmir and the north-eastern states, where rivers and steep gradients allow run-of-the river small-hydro projects.
In May 2025, MNRE had revised its small-hydro guidelines. These revisions make projects easier to implement and more performance-oriented by requiring equipment certification and post-commissioning verification, allowing flexible commissioning timelines, and connecting financial assistance to actual generation. To receive the remaining CFA, projects must now reach 80% of projected generation for one month rather than three, with proportionate reductions if the targets are not met.
