The central government has approved a ?230 billion plan to spur electric and hybrid vehicle production over the next eight years, setting itself an ambitious target of 6 million vehicles by 2020.
India has a nascent electric and hybrid vehicle industry, with most manufacturers focusing instead on low-emission cars, citing the prohibitively high costs of new technologies and an almost non-existent support infrastructure.
"The question is the viability ... The cost of the car and how much the consumer can pay, there is a gap," said Pawan Goenka, chairman of Mahindra Reva, India's only electric-focused carmaker.
India's target to produce 6 million green vehicles by 2020, of which 4 to 5 million are expected to be two-wheelers, comes as China aims to have 500,000 electric and hybrid cars on its roads by 2015.
Reva, controlled by Mahindra & Mahindra (MAHM.NS), aims for sales of 30,000 of its battery-run cars a year by 2016.
S. Sundareshan, secretary of India's Heavy Industries ministry, said that New Delhi would provide around 130 to 140 billion rupees of the total investment in the plan, with companies providing the remainder.
"We will put in some specific schemes with regard to subsidy element, R&D, demand creation and infrastructure," Sundareshan told reporters.
"More individual schemes will come out at a later date."
India's slowly growing market for electric vehicles crashed to a halt in April after the government withdrew subsidies worth up to 100,000 rupees per vehicle.