Tamil Nadu state has the distinction of 719 MW capacity windfarms at the end of September 1998 out of the country＇s total figure of 992 MW. Andhra Pradesh has 58 MW installed windfarms in the state. 1995-96 saw a boom when 282 MW windfarms were set up in Tamil Nadu and capacity in Andhra Pradesh increased by 39 MW. Subsequently there was a steady decline in the windfarm development in both the states. This case study attempted in detail to trace the reasons for the boom and the factors that contributed to the slump in windfarm activity in the states. The role of institutions in determining the effectiveness of National and Regional public-sector initiatives to promote and disseminate wind energy in the two states is discussed in the paper. The study has also looked into the financial, technical, transaction and institutional barriers which inhibit the diffusion of wind energy in the states. Creation of Wind Fund, establishment of co-operative windfarms, setting up of wind estates, linking generation to incentives for optimum production, promotion of reliable water pumping windmills and wind battery chargers for small-scale applications suggested in the paper for rapid growth of wind energy in Tamil Nadu and Andhra Pradesh. The results of the case study may be used to improve public policy intervention in disseminating wind energy in the country. It may also be relevant to multilateral and bilateral aid agencies in their projects and/or programmes to promote cost-effective wind energy technology dissemination in developing countries.