Hydro power is a renewable economic, non polluting and environmentally  benign source of energy.  Hydro power stations have inherent ability for instantaneous starting, stopping, load variations etc. and help in improving reliability of power system.  Hydro stations are the best choice for meeting the peak demand.   The generation cost is not only inflation free but reduces with time.   Hydroelectric projects have long useful life extending over 50 years and help in conserving scarce fossil fuels. They also help in opening of avenues for development of remote and backward areas. 

Our country is endowed with enormous economically exploitable and viable hydro potential assessed to be about 84,000 MW at 60% load factor (1,48,700 MW installed capacity).  In addition, 6781.81 MW in terms of installed capacity from small, mini and micro hydel schemes have been assessed.  Also, 56 sites for pumped storage schemes with an aggregate installed capacity of 94,000 MW have been identified.  However,  only 15% of the hydroelectric potential has been harnessed so far and 7% is under various stages of development.   Thus, 78% of the potential remains without any plan for exploitation. 

Despite hydroelectric projects being recognised as the most economic and preferred source of electricity, share of hydro power has been declining steadily since 1963.  The share of hydro power has been continuously declining during the last three decades.  The hydro share has declined from 44 per cent in 1970 to 25 per cent in 1998.  The ideal hydro thermal mix should be in the ratio of 40:60.  Because of an imbalance in the hydel thermal mix especially in the Eastern and Western regions, many thermal power stations are required to back down during off peak hours.  The capacity of the thermal plants cannot be fully utilised resulting in a loss of about 4 to 5 per cent in the plant load factor.  Even if the share of hydro power is to be maintained at the existing level of 25 per cent, the capacity addition during the 9th and 10th Plan would work out to 23,000 MW.  If the share were to be enhanced to 30 per cent, it would require a further addition of 10, 000 MW of hydro capacity. 

The constraints which have affected hydro development are technical (difficult investigation, inadequacies in tunnelling methods), financial (deficiencies in providing long term financing), tariff related issues and managerial weaknesses (poor contract management).  The hydro projects are also affected by geological surprises (especially in the Himalayan region where underground tunnelling is required), inaccessibility of the area, problems due to delay in land acquisition, and resettlement of project affected families, law & order problem in militant infested areas.