Renault-Nissan is preparing to launch what is likely to be the world’s cheapest car in 2012, undercutting the Tata Nano, which sells in India for as little as 100,000 rupees (£1,300) plus taxes.

Carlos Ghosn, the group’s chief executive, said yesterday that Renault-Nissan had signed a deal with Bajaj Auto, an Indian group best known for its motorcycles and three-wheelers. The companies are collaborating on the development of an ultra-low-cost, efficient runabout, codenamed the ULC, which will go on sale on the sub-continent in 2012 and may be offered elsewhere later.

“I can tell you the cost of this car would be lower than any car today made in India,” Mr Ghosn said, although he declined to specify the car’s price.

After the success of the Nano, Renault-Nissan is concentrating on India’s burgeoning middle class, many of whom want to trade up to four-wheeled vehicles from motorcycles. “Growth [of car sales in India] is going to continue and is going to be very important for the years to come,” Mr Ghosn said.

India sold 1.5 million passenger vehicles last year — a figure expected to rise to two million this year, despite the economy cooling after being buffeted by the global credit crisis and a late monsoon.

With car sales stalling in the West, Renault-Nissan had earmarked South Asia as a key future market and is building a passenger car plant in Chennai in southern India with capacity to make 400,000 units a year.

It is thought that the new joint venture will be 50 per cent-owned by Bajaj, with Renault and Nissan each controlling 25 per cent.

Tata’s two-stroke, 624cc Nano shook the car industry when it was unveiled in January 2008, chiefly because it sported a price tag that would barely cover the cost of an audio system in, say, a Lexus.

With oil prices at the time hovering at record highs, a host of carmakers made it known that they were planning to follow suit and focus on developing countries — as well as budget-conscious, green-minded consumers in the West — with a new generation of cheap and efficient runabouts.

Since then, oil prices have slipped, but much of the world has also fallen into recession, reinforcing the logic behind the ultra-low-cost model.

General Motors, Hyundai, Toyota, Volkswagen and Ford are among those honing their small-car plans. General Motors intends to launch such a vehicle next year, Ford has said it will start producing its own version in India next year, while Toyota aims to have a small car for India in 2011.

Renault-Nissan and Bajaj said in 2008 that they were exploring a partnership to produce a cheap car but since then there have been reports of disagreements over the project. Mr Ghosn said yesterday that those problems had been resolved on Monday and that the companies were now “in total agreement”.

When it first announced the project, Renault-Nissan said that its ultra-cheap car would sell for about $2,500 to $3,000, a price that would have to come down if the car was to compete with the Nano.

The company wanted to increase its share of the Indian market, which is forecast to triple to six million cars annually in a decade.

“Renault-Nissan has 10 per cent of the worldwide market,” Mr Ghosn said. “Globally, we will be the third or fourth-largest [in volume sales this year], but, in India, our market share is less than 1 per cent. We can’t accept the situation.

“We have to adapt our products to suit the Indian market. We need a entry price that’s very competitive, which the new car will provide.”

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