India is the world’s second largest populous nation, fifth largest economy with seventh largest geographical area but experiences high energy poverty. With the lowest per capita energy consumption among world’s top ten economies, India ranks at 137 out of 218 nations. Hydropower has the potential to alleviate India’s energy asymmetry as well as realize its sustainable growth aspiration of a low-carbon regime. However, hydropower in India has been plagued by debates on human displacement, loss of biodiversity, increased risk of natural disasters, and socio-economic conflicts making it an unpopular energy alternative. Here, we review and address various concerns related to India’s hydropower sector, examine scientific evidence, analyze energy policy imperatives, geopolitical considerations, and future directions for a sustainable hydropower policy in India in the context of ongoing climate change. Evidence indicates that besides electricity generation, hydropower infrastructure helps: (i) avert floods, (ii) mitigate the impacts of global warming, and (iii) ensure redistribution of water to arid regions and improve water security. As a part of sustainable hydropower policy, we propose that most of the ecological and social problems associated with hydropower development can be avoided to a great extent through careful planning, proper project design, responsible ownership, and public participation. As short-term measures, we propose: (i) entrepreneurs and planners follow credible and transparent pre-project investigations, (ii) mandatory implementation of environmental management plans, and (iii) better accountability and transparency of statutory bodies as well as hydropower developers. For long-term measures, we suggest: (i) create a ‘National Institute of Energy & Environmental Sustainability’ to oversee post-project hydropower developmental activities, (ii) streamline various bureaucratic and institutional procedures, and (ii) establish a trans-boundary water management system for seamless and coordinated implementation of hydropower development programs across upstream-downstream nations.