The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the Small Hydro Power (SHP) Development Scheme for the five-year period from FY 2026–27 to FY 2030–31, with a total financial outlay of ₹2,584.60 crore.
The scheme is designed to support the installation of small hydro power projects with an aggregate capacity of approximately 1,500 MW. It focuses on projects in the 1–25 MW range and places particular emphasis on harnessing untapped potential in hilly regions, the North Eastern states, and districts along international borders, where geographical challenges have historically limited development.
As per a press release issued by the cabinet on Wednesday, central financial assistance will be provided to ensure the viability of these projects, especially in remote and difficult-to-access areas. In the North Eastern states and districts with international borders, support will be offered up to ₹3.6 crore per MW or 30% of the project cost, whichever is lower, subject to a maximum of ₹30 crore per project.
In other states, the assistance will reach up to ₹2.4 crore per MW or 20% of the project cost, whichever is lower, capped at ₹20 crore per project. A dedicated allocation of ₹2,532 crore has been set aside for this purpose.
The initiative is expected to attract around ₹15,000 crore in investment into the small hydro sector. In line with the Atmanirbhar Bharat vision, the scheme mandates that 100% of plant and machinery be sourced from indigenous manufacturers.
In addition, ₹30 crore has been earmarked to incentivise states and central agencies to prepare Detailed Project Reports (DPRs) for approximately 200 potential projects, thereby creating a strong pipeline for future development.
The government has highlighted several key benefits of small hydro projects. These include significant employment generation, with an estimated 51 lakh person-days created during the construction phase alone, along with ongoing jobs in operation and maintenance, predominantly in rural and remote locations.
The projects will also enable decentralised energy production, reducing the need for long transmission lines and minimising associated power losses. From an environmental perspective, small hydro developments avoid large-scale land acquisition, deforestation, and displacement of communities. Moreover, with typical project lifespans of 40–60 years or more, they deliver long-term socio-economic benefits by fostering local investment and sustained development in underserved areas.
As an important step towards revitalising the small hydro power sector, the scheme will accelerate the utilisation of India’s remaining small hydro potential and contribute to the country’s wider clean energy objectives and rural empowerment goals.
