you're missing one more indirection, your template will see the name "add" if you pass it in as {'add'=>\%foo}. The following runs fine and does the right thing:

use strict;
use Template;


my %add=(
hsh1=>{
  name=>"name1 ",
  type =>"text",
  default=>" ",
  value=>[" "],
  entries=>"M"
},
hsh2=>{
  name=>"name2 ",
  type=>"dropdown",
  req=>"prc",
  default=>" ",
  value=>["value1","value2","value3"],
  entries=>" "
}
);

my $template = Template->new();
$template->process(\*DATA,{'add'=>\%add},\*STDOUT)
    || die $template->error();

__DATA__
[% FOREACH element = add.keys %]
  [% IF add.$element.type == "text" %]
    <input type="text" name="[% add.$element.name %]" value="[% add.$e
+lement.default %]">
  [% ELSIF add.$element.type == "dropdown" %]
    <select name="[% add.$element.name %]">
      [% FOREACH option = add.$element.value %]
        <option value="[% option %]">
          [% option %]
        </option>
      [% END %]
    </select>
  [% END %]
  <br> [% # put a line break between the form elements %]
[% END %]
[download]

__OUTPUT__

    <select name="name2 ">

        <option value="value1">
          value1
        </option>

        <option value="value2">
          value2
        </option>

        <option value="value3">
          value3
        </option>

    </select>

  <br>


    <input type="text" name="name1 " value=" ">

  <br>
[download]