Indian Oil Corp. (IOC), the country's largest refiner, and leading automobile maker Mahindra & Mahindra signed an agreement on Wednesday to work towards making India's first hydrogen-powered engine in two years.

"In the context of rising crude oil prices and over-dependence on fossil fuels, there's an imperative need to do pioneering research in developing alternative fuels," IOC Chairman M.S. Ramachandran told reporters.

The two companies would test and evaluate bio-fuels and internal combustion engines, test hydrogen-powered and hybrid electric vehicles and assess the feasibility of producing and distributing alternative fuels, he said.

Anand Mahindra, managing director of Mahindra & Mahindra Ltd. , said his company was already designing engines compatible with new-generation fuels and had also tested electricity-powered fuels.

"The Indian auto industry is preparing itself for the emerging trends in the use of new-generation auto fuels," he said.

In recent days, political leaders in India, which imports 70 percent of its crude oil requirement, have stressed the need to develop renewable energy sources. U.S. oil prices climbed to record highs above $49 a barrel earlier this month.

Soaring crude prices are expected to raise India's oil import bill by 50 percent to $27 billion in the year to March 2005.

On Tuesday, President A.P.J. Abdul Kalam urged the power ministry to plan a 500-megawatt power plant to use solar energy or bio-diesel from plants such as Jathopha during India's Tenth Five-year Plan, which ends in 2007.

Last week, Prime Minister Manmohan Singh suggested greater use of bio-fuels and faster development and deployment of new technologies such as fuel cells and hydrogen as sources of energy.

India is also testing a blend of diesel and bio-diesel and some parts of the country use petrol blended with ethanol.