Carlos Ghosn, chief executive of Renault and Nissan, yesterday pledged that a car the group is planning to make with an Indian partner would be cheaper to produce than the Tata Nano, the world's cheapest car.

Mr Ghosn said the “ultra low-cost car”, which will be designed and built by Renault and Nissan's Indian partner, Bajaj Auto, would also trump the Nano and any other car in the market on fuel efficiency. It will be launched in 2012.

“The cost of this car will be lower than any other car made today in India,” Mr Ghosn said at the World Economic Forum meeting in New Delhi.

The announcement will stoke competition between global carmakers for the bottom end of the rapidly growing Indian market, which Mr Ghosn predicted would increase from 2m cars a year to 6m in the next decade.

Tata raised the barrier to entry this year with its release of the Nano, whose starting price is about Rs100,000 ($2,150). It is the first car cheap enough to challenge India's burgeoning motorcycle market.

But the Nano's initial production run was fewer than 100,000 units after Tata had to abandon a factory in West Bengal state following protests from farmers.

This gave a reprieve to rivals, such as Renault and Bajaj, which started talks on their ultra low-cost car two years ago. They had initially discussed a car that would be priced between $2,500 and $3,000.

Mr Ghosn would not be drawn on the eventual price of the Bajaj car but pledged that it would be the cheapest car to make.

Renault and Nissan would provide technical support to Bajaj while it was designing and producing the car, he said.