The proposed high voltage direct current link (HVDC) link would be a 200 kilometre submarine cable that could connect Madurai in Tamil Nadu and Anuradhapura in Sri Lanka's North Central province.
It is expected to cost 450 million dollars and would have a capacity of 1000 MegaWatts, the newspaper said, quoting unnamed Indian officials.
Southern India, equipped coal and nuclear generation, has surplus energy.
A joint committee has been set up with Sri Lanka power ministry and Ceylon Electricity Board (CEB) on one side and India's power ministry, the Central Electricity Authority and the Power Grid Corporation on the other.
India now has a transmission link with only Bhutan, as part of the 1,040 MW Tala hydroelectric power evacuation system, the The Hindu Business Line said.
India's National Thermal Power Corporation is already developing a joint venture coal plant with Sri Lanka's CEB.
The plant has been delayed with the location in the East coast city of Trincomalee being shifted. Sri Lanka wanted to site the plant at Sampoor from areas newly captured from Tamil Tiger guerrillas, which was refused by the Indian side..
Media reports say a 500 acre site in the Veloor area, about nine kilometres north of Trincomalee is the latest site. Sri Lanka's Sunday Times newspaper said "rumblings" of protests had started with at least one organization writing in protest..