A Memorandum of Understanding (MoU) between India and Nepal for strengthening cooperation in the field of tourism was also given a green signal by the Cabinet.
The memorandum is proposed to be signed during Modi's visit to Nepal beginning November 25.
Telecom Minister Ravi Shankar Prasad told reporters after the meeting that the Cabinet approved signing of "SAARC Framework Agreement for Energy Cooperation (Electricity)" among the member-states during the 18th SAARC summit scheduled to be held at Kathmandu on November 26-27.
"The agreement will enable greater cooperation in the power sector among SAARC countries. It is expected to improve the power availability in the entire SAARC region. It would facilitate integrated operation of the regional power grid," he said.
In another decision related to SAARC, the Cabinet approved the signing and ratifying the SAARC Motor Vehicles Agreement.
It also approved the signing of a bilateral agreement for the regulation of passenger traffic between India and Nepal on the sidelines of the SAARC summit.
The Cabinet has also authorised the Ministry of Road Transport and Highways to sign similar bilateral agreements and protocols with other SAARC member-states, an official statement said.