Carmakers are gearing up to launch affordable hybrid and electric cars for India in the next few years, executives said, lured by government incentives for fuel-efficient vehicles as the country accelerates efforts to cut worsening air pollution.

As the industry descends on smog-bound New Delhi for India's biggest car show, starting Wednesday, foreign firms like Toyota Motor Corp will join domestic players like Tata Motors and Mahindra & Mahindra in displaying green cars designed to reel in potential buyers.

The stakes are high in one of the fastest-growing car markets in the world. While hybrid and electric cars now make up a tiny fraction of sales, new government aid worth up to $2,000 per car could help catapult green vehicles to nearly a third of a 5 million car market by 2020, IHS Automotive says.

"It is not enough to just introduce new technology in India, you have to make it relevant for the market and the buyers," said C.V. Raman, head of engineering at Maruti Suzuki India Ltd , India's top-selling carmaker.

India's rampant pollution has forced the government's hand. A top court last month ordered an overnight temporary ban on the sale of large diesel cars in New Delhi, among the world's most polluted cities.

Carmakers were left jittery, many having invested heavily in comparatively cheap diesel technology over the years to conquer India.

Reliance on imported parts still makes full-scale hybrid technology cars expensive, but with India's new sales incentives, 'semi-hybrid' technology is seen as a potential longer term solution.

HYBRID ACCELERATION

To incentivise carmakers, the government introduced a scheme last year called FAME - Faster Adoption and Manufacturing of Hybrid and Electric cars - that offers concessions of up to 138,000 rupees ($2,032) on the sale of such cars.

The scheme, introduced before the New Delhi court order and originally planned for two years, will now likely be extended till 2020.

To be sure, some carmakers, like General Motors Co, Hyundai Motor Co and Honda Motor Co, are yet to be convinced on hybrid technology potential in India. Instead, they will focus their presence at the New Delhi auto show on gas-guzzling sport-utility vehicles.

Toyota is among those now looking at bringing in a hybrid variant for future models, as well as cars it now sells in India, which is also moving towards stricter emission norms.

"Our strategy is to go for hybridisation," said Naomi Ishii, head of Toyota's India unit. Ishii did not give a specific timeline, but said the Japanese carmaker will first bring it hybrid in for its top-end models and then in the mass segment, mainly because of the high cost of imported components.

Meanwhile Maruti, majority-owned by Suzuki Motor Corp , has already invested in developing a low-cost version of hybrid technology, irrespective of government incentives. Maruti says the technology combines fuel efficiency and lower emissions, but is not as expensive as existing traditional hybrid technology. – Reuters