The configuration of short-shunt self-excited induction generator feeding induction motor loads (SEIG-IM) suffers from excessive transients during startup of motor load under no load and unstable operation. These problems may be due to subsynchronous; resonance as obtained with series compensated transmission line or due to the connected load system. The use of damping resistors across series capacitors is proposed to damp out the starting transients and for the stable operation. The steady-state model of short shunt SEIG-IM with damping resistors and resistive and motor load is developed to obtain the values of shunt and series capacitances for optimum voltage regulation. The simulated annealing like approach is used to solve voltage regulation optimization problem. The values of shunt and series capacitances and damping resistance are obtained for optimum voltage regulation under entire loading range and stable operation during starting and loading. The results are experimentally verified, which establish the effectiveness of damping resistance and developed algorithm.