The Italian team will fly the Navy's flag to show its solidarity with two marines who were arrested last year for allegedly shooting dead two Indian fishermen.
The Ministry of External Affairs (MEA) has frowned at a statement by the Ferrari team that it hoped India and Italy would find a solution to the situation and called Italian Navy as one of the "outstanding entities of our country".
"Using sporting events to promote causes not of a sporting nature, not in keeping with spirit of sports," the MEA has said.
The National Fishermen's Forum (NFF) has also angrily condemned the move. NFF Secretary T Peter said in Thiruvananthapuram that Ferrari's decision amounted to "a shame on the nation".
"Allowing the Italian company to openly express support and solidarity to the under trials is a serious lapse on the part of the government and sports authorities of the country. We strongly demand that the company be asked to reconsider this," Mr Peter said.
However, Formula One CEO Bernie Ecclestone has distanced himself from the storm kicked up by Ferrari's decision, saying the national association should look into such "political matters".
"What we'd do, we'd look at the national sporting authority (FMSCI) here to have a look at that...we are not political." Mr Ecclestone said when asked about Ferrari's decision.
The Italian team's decision was applauded by Italy's minister for Foreign Affairs, Giulio Terzi. He tweeted: "Congratulations to Ferrari for displaying the Navy's symbol at the India GP. It will show the sailors the whole country is behind them."
The marines allegedly killed the Indian fishermen along the Kerala coastline while escorting cargo vessel Enrica Lexie. They said that the fishermen were mistaken for pirates, who are normally found off the north African and Arab peninsular coast in the Gulf of Aden.
The marines were arrested and kept in a government guest house, kicking off a political storm. They have since been bailed by the Kerala court hearing the case.
The case had created some heartburn in India relations with Italy, which had wanted the marines to be tried at home, claiming that the shooting happened in international waters. India said that it was within its own waters.