NEXT YEAR, Tata, the Indian industrial giant, will launch the world’s cheapest new car.

The company, which is one of the frontrunners to take over Jaguar and Land Rover, is bidding to capture a large share of the expanding Indian market with a four-wheeler for the price of a motorcycle.

This revolutionary Tata is known as the “one-lakh” car. A lakh is 100,000 rupees, about £1,225. It has been the dream of company chairman Ratan Tata for more than a decade. He promises a small, four-door car, with a simple specification, cheap to run, and attainable by Indian buyers who want to step up from two wheels to four.

As the Tata project comes close to fruition, vehicle makers around the world are planning ultra-low-cost cars, primarily for developing markets such as India but also with the expectation that they might appeal to motorists in western Europe.

Tata’s one-lakh car is specifically for India, where it has already spurred rivals into action. Market-leader Maruti Suzuki, whose 800 is currently the lowest-priced car at 205,000 rupees (£2,500), is developing a model it calls New Basic World Standard to be sold overseas but it won’t equal the Tata’s price.

But motorcycle maker Bajaj, which also produces India’s famous “tuk tuk” three-wheeled rickshaws, is taking on Tata on its own terms. It has set up a joint venture with Renault of France to develop its first four-wheeler. Renault is designing a two-cylin-der engine to run on natural gas and expects the Bajaj car to be on sale in India for about £1,500 in 2010.

The Logan, designed in France for Renault’s Dacia subsidiary in Romania and touted as the “€5,000” car, is now made in India as well as Iran, Russia and South America. The Logan has turned out to be a surprising success in western Europe where bringing it up to the latest safety and exhaust-emissions regulations has increased the basic price to €7,500 (£5,200). It will come to Britain next year.

The Logan is a simple family saloon – recently supplemented by a spacious estate car and soon to be joined by a hatchback – but the deal with Bajaj shows that Renault recognises one size does not fit all when it comes to budget motoring.

Renault chief executive Carlos Ghosn said: “In India, the small-car market is well established, but China does not want small cars. There, customers like bigger saloons with a separate boot.

But anyone can make a cheap, throwaway car – the challenge is to make a simple, reliable car at low cost and make a profit.”

Making money at this end of the market is the concern for the world’s biggest car companies, General Motors and Toyota, both of which are working on low-cost cars. These will be made in areas where labour costs are low, but that alone won’t make them viable; there needs to be a rethink of small-car design and engineering.

Toyota is being typically thorough in its approach. At the recent Tokyo motor show, president Katsuaki Watanabe said: “Our project team is studying every aspect of the car’s construction, the materials used and all its component parts.

“This ‘new-element technology’ will reduce costs considerably. It is becoming clear what is realistic and feasible.

“We will have prototypes running this spring, but it will take two or three years before we have a vehicle ready for production and decide when and where it will be made.”

The latest GM low-cost-car study is centred on its company in South Korea. This is also likely to be a rival to the Logan rather than the Tata.

Rick Wagoner, GM chief executive, is sceptical about whether a £1,500 car can provide what today’s motorists want. “We have a car in that price range in China (from its associate company Wuling) and it has all the amenities you would expect from a $3,000 car,” he said.

Although the focus for these companies is on the fast-expand-ing Bric markets (Brazil, Russia, India and China), Toyota and GM also intend to offer their low-est-cost cars in the West. There, they would be more expensive, requiring compliance with more stringent safety rules and emission controls, but still priced below most of the existing budget models.

It remains to be seen whether the same design can satisfy the simple transport needs of India and also be fashionable among upwardly-mobile young customers in Frankfurt or London. Volkswagen thinks it can. At recent motor shows it has exhibited two variants of a future “people’s car”, a small hatchback labelled Up but expected to be called Lupo when it goes on sale at the end of the decade.

The baby Volkswagen has been presented as the company’s answer to BMW’s Mini or the Fiat 500, with premium features that would set it apart from most of the small cars currently available. But the plan is to fit a simpler, two-cylinder engine and less equipment for developing markets, and to make this car in different versions all over the world, including India and China. Prices in Europe will start at about £7,000, but elsewhere they could be as low as £4,000.

The collective rush into low-cost cars is driven by necessity. All the growth prospects are in developing countries. The largest mature markets – western Europe, North America, Japan – are either static or declining.

But as Toyota president Watanabe points out, although there are 900m cars on the world’s roads, two-thirds of the global population does not have one. Those people are its target for the future.

MAXIMUM MINI

EUROPE once had cars like this. In Britain and Italy they were small (the original Mini and Fiat 500); in France, larger and more spacious (Citroen 2CV and Renault 4). These were the “minimum” cars, providing classless, no-fuss, personal transportation.

Tata’s OLRC (one lakh rupee car) goes even closer to the minimum requirements for vehicles suitable for today’s road and traffic conditions.

To make a car that can be sold for as little as £1,225, it is pared down to absolute basics.

The OLRC will be about 3.5 metres long and have four doors plus an opening tailgate. It promises room for four adults, but there will not be much space for luggage unless the rear seats are folded down. Nor will there be any fancy trim – just a speedometer and fuel gauge.

The OLRC has a 660cc, two-cylinder petrol engine under the rear seat.

It won’t be fast but it won’t use much fuel either: it should do 70mpg.

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