Cabinet Approves ₹2,584 Cr Small Hydro Scheme to Add 1.5 GW Capacity

In a significant boost to India's clean energy transition, the Union Cabinet chaired by Prime Minister Narendra Modi has approved the Small Hydro Power (SHP) Development Scheme for FY 2026–27 to 2030–31, with an outlay of ₹2,584.60 crore to develop approximately 1,500 MW of renewable capacity.

The scheme is aimed at accelerating deployment of small hydro projects across the country, particularly in remote, hilly, and North Eastern regions, while promoting sustainable and decentralised energy generation.

Unlocking Untapped Hydro Potential

The programme targets small hydro projects ranging from 1 MW to 25 MW, which are considered ideal for geographically challenging regions where large-scale infrastructure is difficult.

A major focus will be on:

• North Eastern states

• Hilly and border districts

• Remote rural areas with limited grid access

Officials say the scheme will help tap India's significant untapped small hydro potential while improving energy access in underserved regions.

Targeted Financial Support to Drive Investment

The government has designed differentiated financial incentives to encourage project development:

For North Eastern & border areas:

• Up to ₹3.6 crore per MW or 30% of project cost (whichever is lower)

• Maximum ₹30 crore per project

For other states:

• Up to ₹2.4 crore per MW or 20% of project cost (whichever is lower)

• Maximum ₹20 crore per project

Out of the total allocation, ₹2,532 crore is earmarked for project support.

The scheme is expected to mobilise investments of around ₹15,000 crore, significantly leveraging public funding to attract private sector participation.

Boost to Atmanirbhar Bharat and Local Manufacturing

A key feature of the initiative is its emphasis on 100% indigenous sourcing of plant and machinery, aligning with the government's Atmanirbhar Bharat vision.

This is expected to:

• Strengthen domestic manufacturing ecosystems

• Reduce import dependence

• Support local industries and supply chains

Creating a Strong Project Pipeline

To ensure long-term sector growth, the scheme will also support the preparation of Detailed Project Reports (DPRs) for approximately 200 future projects.

• ₹30 crore has been allocated for DPR development

• Support will be extended to both state and central agencies

This pipeline approach is intended to sustain momentum beyond the scheme period.

Employment and Rural Development Impact

The initiative is projected to generate significant employment:

• 51 lakh person-days during construction

• Additional long-term jobs in operation and maintenance

Given that most projects will be located in rural and remote areas, the scheme is expected to:

• Boost local economies

• Create livelihood opportunities

• Improve infrastructure development in underserved regions

Decentralised, Low-Impact Clean Energy

Small hydro projects offer several environmental and operational advantages:

• Minimal land acquisition requirements

• Limited displacement of communities

• Reduced deforestation impact

• Lower transmission losses due to decentralised generation

With typical lifespans of 40–60 years, these projects provide a reliable and sustainable energy source.

Accelerating India's Renewable Energy Goals

The scheme is expected to revitalise the small hydro sector, which has seen slower growth compared to solar and wind energy in recent years.

By combining targeted subsidies, infrastructure support, and policy incentives, the government aims to:

• Expand renewable energy capacity

• Improve energy security

• Support climate commitments

• Drive inclusive regional development

A Strategic Push for Balanced Energy Mix

As India diversifies its energy portfolio, small hydro is being positioned as a critical complement to solar and wind, offering stable and predictable power generation.

The SHP Development Scheme marks a renewed push to harness this potential—while delivering economic, environmental, and social benefits across the country.