The Union Ministry of New and Renewable Energy (MNRE) is working on reviving a small hydropower (SHP) scheme that is likely to receive fresh allocation in the Union Budget 2026, according to officials familiar with the development.
India first introduced a dedicated small hydropower policy in November 2009. It was revised in July 2014 to include specific Central Financial Assistance (CFA) for projects, with the objective of encouraging private sector participation through financial incentives. However, the scheme was discontinued in 2017 due to budgetary constraints, prolonged project delays, and a policy shift toward solar and wind energy, which were seen as more cost-effective and easier to implement.
At present, there is no central scheme supporting new small hydropower projects, with allocations governed by individual state policies, as water resources fall under the state list. The proposed programme is expected to introduce a renewed central policy aimed at reviving SHP projects, particularly in hilly and border regions.
The initiative is likely to target around 1.5 gigawatts (GW) of additional capacity in the coming years and could help double India’s installed small hydropower capacity to 10 GW over the next decade, according to sources. The proposal has reportedly received clearance from the Expenditure Finance Committee but is awaiting further approvals, including Cabinet approval, which would make it eligible for consideration in the next budget cycle.
Officials indicated that the revival reflects a change in priorities, with increased focus on region-specific solutions and the need for reliable renewable power in remote and border areas.
Small hydropower projects in India are defined as plants with an installed capacity of up to 25 megawatts (MW). These projects are generally run-of-the-river systems that do not require large dams or reservoirs. By utilising the natural flow of rivers and streams, they have a relatively lower ecological impact and are particularly suitable for hilly and mountainous regions with steep water gradients.
The proposed revival is expected to involve around ₹2,500 crore in viability gap funding (VGF), with financial support covering approximately 25–30 per cent of project costs. The cost per megawatt is estimated at ₹10–12 crore, with higher VGF support likely for projects in hilly states, northeastern regions and border districts. The objective is to improve project viability in challenging terrains where costs are higher and private investment interest has been limited.