The group, said FT, will "license the manufacture and assembly of its planned Rs 1 lakh 'people's car' to low-volume rural businesses, marking a departure from traditional mass production of passenger cars."
Tata Motors, India's second largest manufacturer of passenger vehicles, will embark on product development later this year. Detailed plans for the four- to five-seater utility vehicle will be readied within six months.
The company will also set up a network of low-cost, low-volume manufacturers around India for component production and assembly, said the newspaper.
But the Tatas are likely to "retain the manufacture of key components like the engine, whose size would be about 600 cc," said FT.
Earlier this year, Tata Group Chairman Ratan Tata had said: "The Rs 1-lakh car is under development." Last year, Tata Motors had said that it was working on a Rs 100,000 car for middle class Indians. Later, despite the scepticism shown by its rivals -- Maruti Udyog Ltd and Hyundai -- the company affirmed that the project was on and it would take up to three to five years for the development of the car.
The project is said to have been regarded by the Tata chairman as a personal challenge, said FT.
The Financial Times quoted Ratan Tata as saying that "this new way of manufacturing should also address issues of rural employment - creating jobs in rural areas is a core theme of India's new government."
The Tatas will ensure the quality is consistently excellent at their regional manufacturing network by closely monitoring and training the licensees, said FT.
With this aggressive move, the Tatas have upped the ante. Maruti's cheapest, no-frills car costs between Rs 230,000 and Rs 250,000. If successful in its bid, the Tata Group could make serious inroads into the markets shares of Maruti and Hyundai, as the small, low-cost car segment is the most popular in the Indian market.
India is set join the select club of countries that buy over a million cars a year. The million-car markets include Japan, the United States, France, Germany, Spain, South Korea, Brazil and China.
In April-February 2003-04, sales of passenger vehicles in India stood at 802,916. For the whole year, car sales are expected to be close to 900,000. With carmakers projecting growth of at least 10-15 per cent for 2004-05, the number is set to cross 1 million some time in 2004-05.
And most of the cars sold belong to the entry-level, low-cost category.
Maruti, the nation's largest car maker, had said earlier that it would meet the Tata challenge of a sub-Rs 1 lakh car, evoking a sharp reply from the Tatas who said: "All the best to Maruti."
With cheap finance available and the purchasing power of the Indians slowly on the rise, more and more people are graduating from two-wheelers to cars. Car makers in India want to grab the lion's share of this growing market.
The Tatas believe the low-cost car will also have a big market in other developing nations. Tata Motors manufactures the small car Indica and the mid-sized sedan Indigo. The company has recently signed a pact with UK's MG Rover to sell Indigo in Britain.
Tata Motors said on May 20 that is would invest Rs 6,000 crore (Rs 60 billion) in the next five years to increase the passenger car capacity at its Pune plant by 50 per cent and plans to raise $100 million shortly.
"We plan to invest Rs 1,200 crore every year for the next five years for product development, quality improvement, modernisation and refurbishing the plant," Praveen Kadle, executive director (finance and corporate affairs), Tata Motors, had said.
Analysts believe that the expansion plan would likely take into account the development of the new low-cost car from the Tata stable.