The Ministry of Finance will review the proposal at some point this month, before it passes through the cabinet for official approval.
The investments will be made under the Prayas initiative which is an element of Prime Minister Narendra Modis broader efforts to increase domestic production with an undisclosed portion of the capacity to be reserved for exports.
Overseas shipments of solar cells and modules jumped 116% year on year in the April to July period to USD 41 million.
Although the details of the plan to support PV manufacturing have not yet been finalized, the government is expected to launch a number of tenders, each in the range of several hundred megawatts, with state funds to be used to back the production of wafers and panels.
The production tenders could be priced at roughly 9 million rupees per megawatt, with plans to start building 5 GW of manufacturing capacity from 2019, Bloombergs sources said.
Earlier this year, Piyush Goyal the minister for power, coal, new and renewable energy said that India could build as much as 10 GW of solar manufacturing capacity by the end of this decade.
A number of foreign companies including Trina Solar, JA Solar and SoftBank have already announced plans to establish production facilities in the country.
Planned state support under the Prayas scheme is also designed to facilitate the construction of 20GW of installed capacity in India over the next decade, in pursuit of Indias target of 100 GW of solar capacity by 2022.
In early October, Indias cumulative installed solar capacity passed the 8.6 GW mark, according to Mercom Capital Group.
The research firm expects the countrys annual capacity additions to reach 4.8 GW by the end of this year.