The South Korean automaker, which also uses India as an export hub for its small cars, said it invested about US$200 million (EUR140 million) to develop the new model - named i10 - that will be sold both in India and overseas.
Heung-Soo Lheem, the head of Hyundai's India operations, said the company hopes i10 will help boost Hyundai's market share in India to more than 20 percent next year from about 18 percent in 2006.
Hyundai's car sales in India have been nearly flat over the past six months as rising interest rates have discouraged many Indians from buying cars. Some of Hyundai's rivals here have managed to overcome the slump, however, by introducing new models.
The base model of i10 will cost 339,000 rupees (US$8,500, Ђ5,900) and is positioned between the Getz, a premium hatchback from the Korean automaker and the Santro, an entry-level small car that is sold under the Atos brand outside India.
"We believe the new compact car will help raise Hyundai Motor's market share in the emerging Indian automobile market," Lheem said.
Through 2008, the company aims to sell at least 100,000 units of i10 in the Indian market and export about 130,000 units.
The company is already building a second plant in the outskirts of the southern Indian city of Chennai.
Hyundai is the second-largest automaker in India, where small cars dominate the market. Maruti Suzuki Ltd., in which Japan's Suzuki Motor Corp. owns a majority stake, is the market leader with about 50 percent share. Homegrown Tata Motors closely trails Hyundai.