Based on the recommendations of the Committee on Hydro Power which submitted its report in March, 1997, the Hydro Power Development Policy was formulated. On 26.8.1998, the Government has accorded approval to the policy on Hydro Power Development. 

The object of the Policy is to prevent a decline in hydro share and to undertake measures for theexploitation of vast hydro-electric potential in the country especially in the North and North Eastern Regions. Hydro stations now account for only 25% of the total installed capacity as against the ideal hydro thermal mix of 40:60. The total hydro potential assessed by CEA at 60% load factor is 84,044 MW. As on 31.7.1998, 15% of this potential has been utilised. With the completion of the hydel projects under construction, the hydro potential utilised would increase to 22%.

The objectives of the policy are:

• Ensuring targetted capacity addition during 9th Plan;
• Exploitation of vast hydroelectric potential at a faster pace;
• Promoting small and mini hydel projects;
• Strengthening the role of PSUs/SEBs for taking up new hydel projects;
• Increasing private investment.

The objectives would be achieved by using the following policy instruments:

• Providing adequate funds in the Central/State Government budget and organising supplementary funding through Power Finance Corporation.
• Entrusting basin wise development to Central Hydel Public Sector Corporations.
• Funding support for Survey and Investigations.
• Establishing a Power Development Fund by levy of cess on electricity consumed and using two-third of the proceeds to promote power development by the State Governments. The remaining one-third will be utilised by the Central Government for promoting hydel projects in the Central Sector and for investment in transmission lines for evacuation of power from inter-State mega hydel projects.
• Providing a differential pricing for peaking power to facilitate greater investment in hydel projects which have the capability to supply peaking power in a cost effective manner.
• Providing an institutional mechanism for dealing with geological risks.
• Utilising the joint venture frame work for promoting hydel projects.
• Simplification of procedures relating to transfer of clearances from State Government to Central Public Sector Undertakings and State Government to private sector.
• Enhancing the ceiling limits for techno-economic clearance by CEA in respect of projects promoted on the MOU route.
• Transfer of work relating to the development of small hydel projects upto 25 MW capacity from Ministry of Power to Ministry of Non-Conventional Energy Sources and providing a suitable incentive package.