Subsidy for electric vehicles will start by April 2014.

The government has earmarked around Rs. 120 billion (US$ 1.9 billion) as subsidy to be provided to electric vehicle manufacturers in the next six to seven years, according to Ambuj Sharma, additional secretary, ministry of heavy industries and public enterprises.

"Our target is to have around six to seven million electric vehicles in the country by 2020," he said.

"Around 35% of differential manufacturing cost (differential cost of a diesel vehicle and electric vehicle) would be provided to the manufacturers. Remaining 65% will come out of fuel efficiency," said Sharma.

He said each year around Rs. 20 billion will be provided to the industry as subsidy to electric and hybrid car manufacturers under the government's 2020 plan.

"Electric vehicle manufacturers need subsidy as initially their cost of manufacturing is higher compared to other vehicle manufacturers. Till the country's infrastructure improves for electric vehicle and cost of battery comes down, the subsidy is a necessity," Sharma added.

Earlier, Mahindra & Mahindra (M&M) said the company will refrain from launching new electric vehicles in India in the absence of any government subsidy promised earlier and look at export markets where government support for electric cars is available.

"We are planning to bring electric version of Maxximo, Gio and Verito. But without government support, we would not go beyond e2o," said Pawan Goenka, executive director and president at M&M, earlier said at a press conference.

M&M's subsidiary, Reva Electric vehicles, launched electric car e2o in March this year which was priced at Rs. 596,000 in Delhi. This was the first car launched by M&M after it acquired Bangalore-based Reva three years back.

Further, Mahindra Racing will join the inaugural FIA Formula E Championship beginning in September 2014.

The motor-sports division of the Mumbai-based US$ 16.2 billion multinational Mahindra Group has signed an agreement with series promoters Formula E Holdings to become the eighth and only Indian team to join the new zero-emission series.

The innovative all-electric global race series will include 10 races in its first season in city-centre locations around the world including London, Beijing and Los Angeles, designed to raise awareness about electric vehicles as well as help advance EV technology.

Mahindra Reva already produces electric vehicles and it was a natural step forward for the Mahindra Group to join the Formula E Championship.

"We strongly believe that Formula E can provide an excellent global showcase for our electric vehicle technology," said Anand Mahindra, chairman and managing director of Mahindra Group.

"With advanced operations and expertise in electronics, IT, automotive technologies and manufacturing, we are already seeing the fusion of this technology into our electric vehicle operations. Racing will further accelerate that trend while Formula E is set to raise awareness globally about the benefits of electric vehicles."

Overall, the auto sector demand has slowed down significantly in the last one year and is reeling with tremendous stress.

Praful Patel, minister for heavy industries and public enterprises, said, "We have made recommendations to the finance minister to take steps for boosting demand in the auto sector."