The state-owned power producer aims to use 5 million tonnes of pellets, made from crop waste, to fuel 17 of its power plants in the current year, the statement said.

Farmers across the northern Indian states of Punjab and Haryana burn off vast swathes of paddy stalk and straw between mid- to late-October and early November, to prepare ground for winter planting.

"The power producer will give preference to bids from suppliers from Punjab and Haryana," the statement said.

Every winter, a thick blanket of smog settles over northern India as a combination of factors such as the burning of crop waste, industrial emissions and vehicle exhaust brings a sharp spike in air pollution levels.

This year, India expects to reduce crop waste burning by as much as 80% in Punjab and Haryana states, part of the country's farm belt that borders the capital New Delhi, government officials said.

(Reporting by Neha Arora; Editing by Andrew Heavens)