Tata chairman Ratan Tata right, and V. Sumanthran, executive director, with the company's Indica - currently on sale in SA.
Tata Motors Ltd, India's biggest motor manufacturer, is exploring cheaper ways to manufacture and sell the planned small car, but critics point to safety issues at such a low price.
The brandchild of Tata chairman Ratan Tata, the new car, which is still on the drawing board, is aimed at getting Indians off motorcycles - where sometimes they can be seen as many as four to a bike - and into something safer.
Scheduled to hit the streets by 2008, the new Tata would make extensive use of plastics and new-age adhesives in its manufacture, to keep costs down.
Sources close to Tata Motors say the car will feature monocoque/unibody construction and will not compromise on safety standards.
The car, to be developed with a 600 cc two or three cylinder four-stroke engine, will not share anything from the Tata Indica.
Instead Tata Motors is looking to the motorcycle ancillary industry for the power train and running gear components.
The engine will be developed to run on liquid petroleum gas as well as petrol, and will consume as little as 4 litres/100 km.
Ratan Tata says the proposed car would be a vehicle that "will seat four to five people and have a rear engine. It will not be a scooter, three-wheeler or an auto-rickshaw made into a car."
"It will also not be a stripped down car. It will be an inexpensive car," he said, but would not have the finish, the speed or the power of a larger car.
Tata said the car would have continuously variable transmission (CVT) automatic gearbox technology, which would make it easier to drive.
As far as styling was concerned, the Italian design house IDEA, which worked with Tata Motors on Indica, would be involved.
The cars may be made at small "satellite units" owned by local entrepreneurs.
The cars would be sent in kit form, and then be assembled, sold and serviced locally, saving on wholesale and dealer's margins, said Ratan Tata.
"It is propelled by the opportunity, but there is also a social or dreamy side to it," Tata said in a recent interview to consulting firm McKinsey & Co.
"In India, you often see four people on a scooter it's a dangerous form of transportation. If we can make something available on four wheels ... then I think we will have done something for a mass of young Indians," said Tata, who estimates Tata could eventually sell 1 million units of the new car a year.
While the prototype remains shrouded in secrecy, analysts say safety will be a concern and margins extremely thin.
"It's not so simple to make a car at that price which is clearly a psychological mark which can be practical and safe, especially in the current scenario of high input costs," Dipen Sanghavi at Pranav Securities, told Reuters.
"Despite all the cost-cutting measures, it's doubtful what sort of margins can be made at that price," he said.
The company was grappling with safety issues, Tata said, adding that these would be resolved before the car reaches the market.
Currently the cheapest car in India, the M800, a Suzuki-based vehicle made by India's largest car maker, Maruti Udyog, sells for around R30 000.