The low-cost car that the Renault-Nissan Alliance and India's Bajaj Auto will produce to rival the Tata Nano will be designed, sourced and manufactured by Bajaj and marketed in India and emerging markets overseas by Renault, the companies said in a statement.

The car is due to be launched in 2012.

Small cars make up about 70% of the Indian car market and observers don't expect that to change even as India's new car market grows with some analysts predicting it could more than double to over 3m a year by 2015. Maruti Suzuki is the undisputed leader with more than 50% of the market.

Earlier this week, Toyota said it would invest about Y9bn (US$103m) to produce engines and transmissions for its compact car Etios in India due for launch by the end of the year.
So far this year GM has launched the Beat, Ford the Figo and VW the Polo to try to woo India buyers.

Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) is predicting that new car sales are expected to grow 12%-13% this financial year through March, about half the pace of last year, mainly due to a shortage of auto parts and a higher sales base of the previous year.

Car sales are forecast to touch 1.71 million units this year, up from 1.53m last year, Pawan Goenka, president of SIAM, told a news conference. Total sales of cars and SUVs will likely reach 2.19 million units, he said.