If the policy gets Cabinet's approval, NGOs will be expected to raise funds in the form of donations or user charges for development work in partnership with the government, said a Times of India report.
"These funds may even be used for the maintenance of the infrastructure created by the government," an official was reported as saying.
The policy is likely to set rules and regulations for NGOs working with the government on various developmental projects.
The policy also plans to amend the existing Foreign Contribution Regulation Act (FCRA) to facilitate clearance of funds. So far, FCRA has been the sole mechanism for NGO funding in India.
"While keeping a check on them, the policy aims at encouraging the involvement of NGOs in public service institutions like schools, vocational training centers, family welfare centers and hospitals," the official was reported as saying.
The policy is also likely to comprise a list of NGOs whose credentials have been verified by the government, so that state governments can verify the NGO while shortlisting them.
For transfer of public funds, the government will grade the NGOs and fix their financial limits, in consultation with members of that NGO, the report said.
As per the proposal, informal associations like self-help groups and 'mahila mandals' or female self-help groups will have to register themselves with the local administration or any higher authority.
According to the policy, care will be taken to ensure that the registration process is user-friendly and non-regulatory if public funds are not accessed.
To ensure volunteers are respected and extended cooperation from the government, government officials and the community, a model charter of volunteer rights and privileges will be drawn up in the new policy. It is understood that all arms of the government and public institutions will have to adopt the charter.
As per the new policy, consultancy forums will be set up in the states and Planning Commission to collaborate with NGOs.
Coordination committees may also be set up at central, state and district levels for grievance redressals and implementation of policies.
The report further said that central and state governments will have awards for NGOs who have done well in their fields.