Renault is developing a small car for India to take on the likes of Maruti Suzuki's Alto, Hyundai’s Eon and Chevrolet's Spark, in the segment that accounts for about 40-45% of the country’s car market.

The Economic Times of India reported work has begun on the car codenamed "A Entry" under the leadership of Gerard Detourbet, Renault's low-cost car specialist. It will be powered by an 800cc engine.

The ET has learned that Renault has started working on the smallest engine yet in its global portfolio, codenamed B4A, which is likely to deliver economy of over 20km a litre.

The new small car is likely to be rolled out from the Renault Nissan Alliance plant in Chennai [once Madras] within the next three years.

Sources have told the newspaper that the 'A Entry' car is a global product and is being developed with emerging markets in mind.

Renault India told ET it “might look at a car below the [Nissan Micra V-platform-based, India-only] Pulse in future".

Detourbet has in the past delivered on cost, quality and reliability with the Logan, and was appointed to to spearhead the India project in November last year. After a series of studies, the French carmaker has decided to begin work. The key development is currently underway at the Renault Nissan Technology & Business Centre India in Chennai.

Sources close to the project said Renault considers the price of a Clio would be too expensive in India so it has decided to develop an entry-level car platform for the emerging markets.

Renault has been considering a low-cost car for India for some time although projects have been put on hold during the economic crisis. The French carmaker also has a project with Bajaj but has realised the need to develop an entry-level platform on its own, irrespective of this.

Sources also told the ET that the 'A Entry' car platform is also likely to be shared with alliance partner Nissan for its Datsun small car project.

Last year Renault sold just 1,500 cars in India. However, sales have been boosted by the Dacia Duster and the company is aiming to sell 30,000 units this year.

Renault entered the small car market in India with the Pulse but this model has struggled to sell more than 500-600 units a month in a segment where Maruti Suzuki's Swift sells about 15,000-18,000 monthly.

Analysts believe there is a big opportunity in the country’s entry-level car segment. Even if 5-10% of 13m two-wheeler users graduate to cars, that opens up a big market. An 800cc car, if delivered in a proper package, could bring in big volumes.