Indian ministers approved a budget of $1.4 billion to provide technology and infrastructure for the programme, according to a government statement.
It said the cabinet had approved financing to launch an Indian-developed craft in a "low earth orbit for a mission duration ranging from one orbital period to a maximum of seven days."
Prime Minister Narendra Modi announced in August that India will launch a manned space flight by 2022 with at least one astronaut.
India plans to undertake two unmanned and one manned flight as part of its Gaganyaan (Sky-Vehicle) Programme, the statement said.
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The country has invested heavily in its space programme in the past decade, stepping up its rivalry with China.
The Indian Space Research Organisation also announced in July that it planned to send an unmanned mission to the moon in 2019.
India launched an orbiter to Mars in 2013 which is still operational and last year launched a record 104 satellites in one blast-off.
New Delhi is competing with other international players for a greater share of the satellite market and is known for its low-cost space programme.
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