Ratan Tata said his company will bring what is being billed as "the people's car" to market next year and its price would be on target, despite a sharp rise in prices of steel and other inputs since the project was announced three years ago.
Auto makers from around the world are keenly watching progress in the Tata project, which analysts say could set new price benchmarks and force other manufacturers to follow suit.
But Tata has been criticized by environment groups who say the attractive price tag would bring the car within the reach of millions of ordinary Indians, triggering more pollution and burdening the country's crumbling infrastructure.
However, Tata said his car will adhere to strict quality norms like any automobile in the developed world.
"We will have less pollution per vehicle than any other vehicle in the country today," Tata told The Associated Press.
The pollution levels will be close to that of two-wheelers, he said.
He acknowledged there would be more congestion, but said the answer lay in building more infrastructure rather than ask auto makers to roll back production.
Tata said he was curious why his low-cost car that caters to the aspirations of average Indians was being singled out for criticism.
Earlier, there was skepticism that the company could stick to the price target and now it is facing "flak for a different set of reasons," he said. "Damned if you do, damned if you don't."
Initially, the company plans to make between 250,000 to 500,000 units a year, Tata said. While the base model will cost 100,000 rupees, the company will offer two more variants at a higher price with added features, he said.
Keeping fuel usage flexible, including the use of ethanol, was also being considered, he said.
The project has spurred other global automakers to explore similar ventures.
Already, French auto maker Renault SA and its Japanese partner, Nissan Motor Co., are trying to determine if they can sell a compact car for less than $3,000.
Japan's Toyota Motor Corp., South Korea's Hyundai Motor Co. and Chinese auto maker Chery could also be looking to make ultra-cheap cars in India, analysts say.
According to German auto consulting firm CSM Worldwide, the new car could help Tata Motors emerge as the country's largest manufacturer of cars and light trucks by 2013.
Although a giant in truck and bus manufacturing for a long time, Tata has only about one decade of experience selling cars, which are limited to a handful of models. In India, it trails South Korea's Hyundai Motor Co. and market leader Maruti Suzuki Ltd., which is controlled by Japan's Suzuki Motor Corp.
Besides the ultracheap car, Tata said the company will introduce several new models next year, most of them in partnership with Italian auto maker Fiat.
India is among the world's fastest growing automobile markets, thanks to a booming economy that has boosted middle class incomes and demand for cars.
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