The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the Small Hydro Power (SHP) Development Scheme for FY 2026-27 to FY 2030-31, allocating ₹2,584.60 crore to support the development of small hydro projects with an estimated capacity of 1,500 MW across the country.
The scheme aims to accelerate the deployment of small hydro projects ranging between 1 MW and 25 MW, with a strong focus on hilly regions and North Eastern states, where the potential for such projects remains largely untapped. These decentralized projects are expected to enhance clean energy generation while supporting rural and remote regions.
Under the scheme, Central Financial Assistance (CFA) will be provided to developers. In North Eastern states and districts with international borders, the assistance will be ₹3.6 crore per MW or 30% of the project cost, whichever is lower, with a maximum limit of ₹30 crore per project. For other states, the assistance will be ₹2.4 crore per MW or 20% of the project cost, whichever is lower, capped at ₹20 crore per project.
Out of the total outlay, ₹2,532 crore has been earmarked for supporting project development, which is expected to catalyze investments of around ₹15,000 crore in the small hydro sector. The government expects the initiative to significantly boost India’s clean energy transition while encouraging infrastructure investment in remote and rural areas.
The scheme also aligns with the Atmanirbhar Bharat vision by ensuring that 100% of the plant and machinery used in these projects will be sourced domestically, strengthening indigenous manufacturing capabilities within the renewable energy ecosystem.
In addition to project support, the scheme will promote the preparation of Detailed Project Reports (DPRs) for nearly 200 potential SHP projects, creating a future pipeline for sector expansion. For this purpose, ₹30 crore has been allocated to support state and central government agencies in DPR preparation.
The government estimates that the scheme will generate around 51 lakh person-days of employment during the construction phase, while also creating long-term jobs in operations and maintenance. Since small hydro projects are decentralized, they require minimal transmission infrastructure, thereby reducing transmission losses and improving energy efficiency.
Officials noted that the initiative is expected to revitalize the small hydro power sector, enabling faster utilization of the country’s untapped potential. Small hydro projects are considered environmentally sustainable, as they typically avoid large-scale land acquisition, deforestation, and displacement of local communities.
Beyond clean power generation, the scheme is also expected to drive socio-economic development in remote regions by attracting local investment and generating durable employment opportunities, with most SHP projects having operational lifespans ranging from 40 to more than 60 years.
