"Bajaj Auto and Renault are in preliminary deliberations to jointly understand customer requirements and business potential for 'very competitive vehicles' in India," the two companies said in a joint statement released Saturday.
The statement didn't put a price on the cars, but Renault's Chief Executive Carlos Ghosn has previously said he wanted to make a car for less than US$3,000 (Ђ2,200) to penetrate India's fast growing and highly competitive small car market.
Renault's plans have been spurred by India's Tata Motors Ltd, which is building a factory in eastern India to make compact cars for just 100,000 rupees (US$2,500, Ђ1,830) - a move that experts say could set new standards for the automobile industry.
Bajaj Auto, based in the western Indian city of Pune, is one of India's leading manufacturers of motorcycles and motorized rickshaws, but it has no experience in making cars.
The statement didn't say why Renault was looking for another partners while it already has an alliance with Mahindra & Mahindra Ltd., a maker of SUVs and tractors, and both are building a large factory in southern India to scale up production of Logan - a midsize sedan from the French company that was introduced here earlier this year.
Japan's Nissan Motor Co., which is 44 percent owned by Renault, is a part of that venture and would be using the plant in southern to manufacture and export small cars to Europe.
Reports in the Indian media have said that Mahindra & Mahindra was not keen on getting into the small car segment.
, chief executive of both Renault and Nissan, has previously said he would need an Indian partner to leverage their low-cost skills for a competitive offering.
Auto sales in India are projected to double to 2 million units over the next five years. Compact hatchbacks, with prices starting from US$4,500 (EUR3,300), account for three quarters of current sales.
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