Pellet guns will be used only after less lethal weapons fail to control the stone-pelting protesters and before firing is ordered as the last resort, official sources said.
Oloeoresin, a semi-solid extract in a solution, mixed with spicy gel, could be put in the grenade casings to tackle rioting mobs, they said.
The suggestion for using such grenades came up at a meeting chaired by Union Home Secretary Rajiv Mehrishi which was called a day after the Supreme Court voiced concern over injuries caused by pellet guns to minors and asked the Centre and state to consider other effective means to quell the protests as it concerned "life and death".
The sources said Oloeoresin-based shells emerged as an immediate solution and will be used after carrying out necessary testing by the security forces.
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It is being manufactured by Defence Research and Development Establishment (DRDE), a defence laboratory of the Defence Research and Development Organisation (DRDO).
However, the meeting was of the view to that pellet guns should continue to be used if less lethal weapons failed to control violent crowds.
Immediately after exploding, it emits gas which causes breathing difficulty and irritation in eyes.