In order to boost the development of small hydro projects in the country, the Indian government has asked the Rural Electrification Corporation (REC) to fund small hydro projects with a capacity up to 25MW.

REC will supplement the efforts of the Indian Renewable Energy Development Agency (IREDA), which has traditionally funded renewable energy projects in India, including small hydro. REC will replace the Power Finance Corporation (PFC), which will now concentrate on financing hydro projects above 25MW. REC, IREDA and PFC are all fully-owned by the federal government. Until now, REC had only been funding rural transmission and distribution schemes.

Small hydro power in India has generally been used to boost energy at the tail-end of the regional grids. The federal government now wants to utilise the power obtained from small hydro for localised supply to rural areas (especially in remote places), rather than putting it in the grid.