The spy craft, called the Communication Centric Intelligence Satellite is expected to be launched into orbit in 2014, keeping a close watch on hot spots in the troubled neighborhood.
CCI-Sat is part of a high-priority plan to develop electronic warfare systems for India's army, navy and air force, G Boopathy, director of the Defense Electronic Research Laboratory, was quoted telling local media.
The laboratory is developing the $25 million satellite and Boopathy said the project was still in its initial phases of planning.
"The focus now, is space; we have to equip ourselves for electronic warfare from space, too," he said.
Beyond surveillance, CCI-Sat is capable of picking up images, even conversations, between satellite phones.
The satellite is expected to orbit Earth at an altitude of 300 miles and keep watch on hostile regions in India's region by passing on surveillance data to intelligence command-and-control centers.
The Hindu newspaper reported the satellite will be fitted with electronic sensors that are more powerful than the Indian Space Research Organization's remote-sensing satellites.
It said the electronic warfare sensor would be "located on on the mountain range facing Pakistan, China, Nepal and the northeast part of the country, to detect troop or vehicular movement across the borders."
Only a select number of countries, including the United States, France and China, are using such electronic spy satellites.
While the payload will be built by India's Defense Electronic Research Laboratory, the satellite's design and development will be made by the country's space research organization.
India is poised to put an other two military Cartosat-2B satellites in orbit in the coming months. Both will also be used for military purposes.
Last year, India launched its generic RISAT-2 military satellite, which is keeping a high-resolution eye on the country's borders and coastline to watch for terrorist infiltration, Defense News reported.
Meantime, the director of Defense Avionics Research Establishment revealed that new electronic warfare technology has been developed for light aircraft and that the system was set to be tested imminently.
Defense scientists told local media that India was focusing research on technologies to intercept and jam satellite phone networks.
"That project is going on," an unnamed official was quoted as saying. "Within a year, it will be ready."
Among other developments, officials said a "penetration aid," that allows Indian military aircraft to penetrate enemy territory without being identified by surrounding radar.