The government plans to invest around Rs 13,000 crore over a period of eight years to promote electric and hybrid vehicles in the country and the Department of Heavy Industries is expected to seek Cabinet approval for the same within the next three months.

According to sources, the Department of Heavy Industries has also decided to include a clause in the draft National Mission for Hybrid and Electric Vehicles (NMHEV) suggesting PSU banks to offer loans to customers for purchasing electric vehicles (EVs).

"The government will put in around Rs 13,000 crore till 2020. This is mainly to incentivise the sector to attract private players," said a senior official from the Department of Heavy Industries.

The earmarked amount will be utilised for setting up R&D centres apart from various other activities, including giving tax benefits.

These incentives will help in cutting down the production costs of such vehicles as these are already very expensive compared to the traditional fuel-based vehicles, he added.

"In next three months, we will send the proposal to the Cabinet for its approval ... This investment will help the government to save Rs 27,000 crore on fuel costs," the official said.

Countries like the UK, France and Germany give such types of incentives to promote hybrid and EVs, he added.

Ministry of Heavy Industries and Public Enterprises is drafting the NMHEV in consultation with various stakeholders of the automobile industry. The first meeting took place on May 11, 2011, and about 25 sittings have taken place so far, deliberating various issues.

Talking about financing for purchasing such vehicles, an industry source said: "Currently, no financing facility is available for purchasing EVs. Many lower-middle class families are buyers of two-wheeler EVs that have very minimal operational costs. The government may give a directive to PSU banks to give loans to such buyers."

It is understood that under the NMHEV, it would be made mandatory for all upcoming housing complexes across the country to have charging points for electric vehicles.

"It is proposed that no drawing will be passed by the Ministry of Urban Development if there is no charging socket planned at the parking space," a source said.

Besides, NMHEV will also advise the Automotive Component Manufacturers Association of India to develop and produce components for alternate fuel-driven vehicles to reduce shortages of parts.

Sources further said the government also will create EV zones in certain 'highly polluted' cities as pilot projects to promote environment friendly mode of transportation.

"The NMHEV will mainly provide demand-centric incentives to customers. These will be given to the manufacturers for passing on to the buyers, based on many parameters such as fuel efficiency and carbon emission standards," a source said.

During the Budget for 2011-12, the government had proposed to set up the NMHEV to encourage manufacturing and selling of alternative fuel-based vehicles.

Leading manufacturers like Hero Electric, Maruti Suzuki, General Motors, Tata Motors, Toyota Kirloskar Motor and Mahindra & Mahindra are part of this entire process.

In December 2010, Ministry of New and Renewable Energy (MNRE) had announced a Rs 95 crore incentive package for the remaining part of the 11th Plan. The scheme, which ended in March 31, 2012, envisaged incentives of up to 20 per cent on the ex-factory prices of vehicles, subject to a maximum limit.

The cap on the incentive was Rs 4,000 for low speed two-wheelers, Rs 5,000 for high speed two-wheelers, Rs 60,000 for seven seater three-wheeler and Rs one lakh for a car.

With the financial assistance scheme ending, the EV segment has seen sales dropping by over 75 per cent, leading to 275 dealers closing shops in the last 2-3 months.

Some of the leading electric two-wheeler manufacturers include Hero Electric, Avon Cycles, BSA Motors and Lohia Auto.

In the three-wheeler space, Lohia Auto and Mahindra & Mahindra are present. The four-wheeler market is minuscule with only one player Mahindra Reva.