Chairman Fujio Cho on Wednesday said Toyota Motor expects to launch a small car within two years, with the first production facility likely in in India.

“We are thinking of several countries but maybe first production (unit will be) here,” Fujio Cho told Reuters during an Indo-Japan business conference attended by Japanese prime minister Shinzo Abe.

Toyota has previously said it is developing a low-cost car for both emerging markets and, possibly, more developed markets as well.

India had topped the list of global candidates for a site to build the cheap family car, a source had told Reuters earlier this year. Brazil was mentioned as another possibility.

The news agency noted it had been reported that Toyota would build a new 100,000 units a year plant in India, where it has an existing unit near Bangalore with a capacity of 60,000 units.

Toyota owns 430 acres of land at the site, enough for a few more plants and a total annual capacity of 630,000 units, Reuters said.

If Toyota decides to launch a new model, then it would expand capacity in India, Cho told the news agency.

“We have plenty of room in [the] Bangalore facility. If we build [a] new plant, we will build in [the] current facility,” he was quoted as saying.

Reuters said Toyota sold 48,000 vehicles in India in 2006, where it lags rivals, including Suzuki’s Maruti Udyog, Tata Motors and Hyundai Motor.

Tata Motors is building a small car priced at about INR100,000 [the so-called ‘one lakh’ car], scheduled to launch in the second half of 2008, Reuters noted.

Toyota may be eyeing the success of Renault’s ‘no frills’ Logan, developed for emerging markets, but, following dealer and public demand, now also sold in more developed markets, with appropriate specification enhancements.

Renault builds, or plans to build the Logan in a number of countries, including Romania, Iran, Brazil and India, in cooperation with long-established local automaker Mahindra & Mahindra.

Reuters noted that the French automaker is now in initial talks with Bajaj Auto on making “very competitive vehicles” in India.

The news agency added that Renault’s success with the Logan and the expectations of the Tata car have prompted other auto makers, including Fiat and Volkswagen, to also examine low-cost models.

Annual passenger vehicle sales in India are forecast to nearly double to 2m units by 2010. More than two-thirds of the fast-growing market is for small cars, Reuters added.