The award will be presented to him at the awards ceremony of the festival to be held on November 1 at the National Centre for the Performing Arts (NCPA) here.
"I have spent half my adult life doing what I enjoy: writing. But it can just as often drive me round the bend. Laughter is the most serious weapon I have. But I would also hope that I can provoke my readers to question received wisdom and reject the dogmas that fuel violence and deadly intolerance," Nagarkar said in a statement.
A significant writer in postcolonial India, the bilingual Nagarkar's debut novel "Saat Sakkam Trechaalis" (1974) in Marathi caused a storm when it came out, and not just because the author seemed mathematically challenged. It was later translated into English, "Seven Sixes are Forty-Three."
His book "Raavan and Eddie" (1994), set in the chawls of the mill city was first written as a screenplay. He made it into a triology with the books "The Extras" (2012) and more recently "Rest in Peace."
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"Satirical, savage but always subtle, Nagarkar defines what is best about the writing that comes out of the subcontinent," Anil Dharker, founder and director Literature Live! said in a statement.
The award, which carries a silver plaque and a cash prize of Rs 5 lakh, has been instituted to recognise and honour outstanding contributions to the Indian literary space. Past recipients of the award have been M T Vasudevan Nair in 2014, Khushwant Singh in 2013, V S Naipaul in 2012 and Mahasweta Devi in 2011.