Paramilitary forces have been known to break up protests and conduct counter-insurgency operations using explosives that can cause serious injury and even death.
"The red chilli powder hand grenades will have a temporary stunning effect but will not kill people," Suranjan Pal, an official at the Defence Research and Development Organisation, told AFP.
Scientists of the research wing in the defence ministry say the grenade will be made using a chilli known as Bhut Jolokia, grown in the northeastern state of Nagaland.
The potent red chilli is said to be 1,000 times hotter than commonly used kitchen chilli.
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Pepper spray and tear gas are commonly used as crowd deterrents in India.
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