Tata is working on a version of the Nano, claimed to be the world's cheapest car, for the US market and aims to bring the automobile to Europe by 2011, Rata Tata, the chairman of the Indian conglomerate, said today.

At the same time, Tata began to detail the sales process for the Nano in India at a lavish launch event in Mumbai.

The company said it would set up a lottery system whereby 100,000 buyers would be able to purchase the car at its original price, which is expected to be 100,000 rupees (£1,400) for the basic version.

Tata will announce the actual prices later today. It said three models of the car will be offered in India: the basic version; a version with air conditioning and a third version with air conditioning, powered front windows and other extras.

Mr Tata said that he believes the car is capable of eventually achieving annual sales of one million units a year across the sub-continent. He added that the global economic downturn had led him to think that the Nano “could be of considerable interest as a low-cost product” in the US and UK.

At the recent Geneva Motor Show, Tata unveiled the Nano Europa - a version of the car it said would pass European safety standards, something that the Indian model will not.

However, before it can set about making a mark in overseas markets, the tiny runabout, which has been designed to lure India’s middle classes away from their motorcycles, first faces a hurdle in its mission to bring motoring within the reach of India’s masses: an anticipated three-year waiting list.

Analysts estimate that there will be as many as 500,000 applications for Nanos when the company begins to take bookings for "the people's car" in India next month.

The rush of interest promises to overwhelm production capacity, which is expected to languish as low as 50,000 units over the coming year.

A new factory, capable of producing an estimated 250,000 Nanos a year, will come online only next spring after an industrial dispute forced Tata to abandon its original plant and delay the launch by seven months.

That means waiting times could stretch until 2012, by which time the model is likely to face competition from other low-cost models currently under development.

Rival projects include a joint venture between Renault-Nissan and Bajaj, the Indian two-wheeler manufacturer, which last week said it was on track to produce a Nano-type super-compact car by 2011.

The potential for bad feeling among those consumers who lose out in the lottery may prove to be the latest pitfall for a project widely regarded as emblematic of India’s economic ambitions, but which has been forced to negotiate a rocky road on its way from the drawing board to the nation’s showrooms.

Tata’s problems began in earnest last year when a row erupted over the land on which the company had begun building a new factory to produce the ultra-cheap car.

Farmers in the state of West Bengal alleged that the site was stolen from them and mounted violent demonstrations that forced the company to abandon the partly-built plant at a cost of as much as $350 million (£240 million). The disruption delayed the launch of the Nano by seven months.

The company has since begun to build a factory at a new location, in the western state of Gujarat, but production there is not expected to start until 2010.

The Nano delay has contributed to a wretched period for Tata Motors, which recently posted its first quarterly loss in seven years and whose shares have lost three quarters of their value in the past year.

Compounding the company’s woes, its credit rating has been downgraded to junk status in the wake of its debt-fuelled acquisition of Jaguar Land Rover last year.

Analysts believe that Tata may have to wait six years for the Nano to show a profit.

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