Renault and Nissan sign have signed a memorandum of understanding (MOU) with the state government of Tamil Nadu to develop a 'greenfield' car plant near Chennai (once called Madras).

Renault product planning chief Patrick Pélata and his Nissan counterpart Carlos Tavares on Friday signed the MOU that will see the facility built in Oragadam.

The 50/50 joint venture deal commits the automakers to a minimum investment of INR45bn (EUR780m/$US1.14bn), for an installed capacity of 400,000 vehicles per year within seven years after the effective date of the agreement.

The project, a 670 acre (270 ha) complex, will provide vehicle production for each car maker, plus a powertrain plant. Production is expected to start early in 2010.

In a statement, the two partners said they would optimise production costs through economies of scale thanks to joint investment in plant and infrastructure, as well as purchasing synergies.

"The plant will produce a wide range of products for both partners, suited both for the Indian market and for export (Nissan mainly)," the statement added.

Renault has been selling its low-cost Logan sedan in India since May 2007 with local partner Mahindra & Mahindra. By the end of January the model had achieved a 12% market share in India's C segment with more than 20,000 vehicles sold since launch, placing it third.

Nissan recently concluded a master cooperation agreement with Ashok Leyland and agreed to form joint venture companies to develop and build light commercial vehicles and their powertrains.

"For the Renault-Nissan Alliance, India represents a strategic market with high growth potential in numerous segments," the statement said.

Pélata said: "India, one of the fastest-growing car markets and one of the most competitive supply bases in the world, will play a key role in Renault's growing global presence. With the Chennai plant, Renault wants to build a full line-up for India, following the current success of Logan."

Tavares added: "India is a significant part of Nissan's global expansion plans. We are eager to build and deliver products that meet the needs of the Indian market. At the same time, we see India as another export base that will allow Nissan to be competitive in the global supply chain network."