New Delhi: French car maker Renault SA is likely to invest €1.5 billion (Rs 10,335 crore) in India for its small car project and is in talks with the Gujarat government to build a factory in that state.

Renault and its partner Nissan Motor Co. are planning to build a new small car in India as part of a strategy to boost sales in the world’s fast growing emerging markets, The Wall Street Journal (WSJ) reported on 23 November.

A file photo of the new Logan from Renault

“The company held a closed-door meeting with top government officials a couple of weeks back," said a Gujarat government official. “They are exploring possibilities of setting up a plant here."

Although the company is yet to make a formal proposal, it has indicated a “massive" investment, the official said. “They want land near Vadodara, which has a proximity to ports there," he said. “Their focus is on exporting cars from here."

The official said the company has been scouting for at least 100 acres for which it aims to invest more than 2,000 crore in the first phase.

In total, the company is planning to invest €1.5 billion and build a factory to produce at least 400,000 cars every year, said another person with direct knowledge of the matter.

“The investment includes setting up a new plant, the project development cost and developing a vendor base near the plant," this person said. “The car is expected to be rolled out by 2015."

Marc Nassif, managing director of Renault India, said in a phone interview on Sunday, “It’s very, very premature. It is not decided yet," he said. “However, we are bullish on the Indian market."

An email sent to Rachel Konrad, the spokeswoman of Renault SA, on 28 November, remained unanswered. Another email sent on 30 November to Gerrad Detourbet, who will be heading the project, did not elicit any response either.

The company has appointed Detourbet, head of Renault’s entry level division, to oversee the new project. “Detourbet, the man behind creating the Logan, Renault’s best-selling low-cost car globally, will soon move to India," said the second person.

However, Nassif said the company is still not making profits in India and is dependent on global operations for investments. “Till you press the final button, nothing can be said," he said. “Gerrad is taking over and let’s see how things work out."

Nassif said the company sees an opportunity in the entry level segment and would like to position itself accordingly. “Maruti Suzuki sells cars positioned at a difference of every 20,000-30,000. So, why can’t we do it?" he said. “We would like to position our cars in the range between 2-4 lakh."

The small car market will soon be a global phenomenon, given the changing market dynamics, an expert said, adding that India would continue to be a focus in this segment.

“The Indian market will remain a small car market for years to come. But small cars will be important for global markets, with consumers getting more and more concerned about environmental changes," said Abdul Majeed, auto practice leader at consultancy firm PricewaterhouseCoopers. “This is the right time for them (Renault) to invest in India. If they do not do this investment now, it will get difficult for them."

The second person cited earlier said Detourbet comes to India with a clear mandate from the car maker’s headquarters to develop a quality car at the lowest price possible. “He (Detourbet) spent an entire day driving (Maruti Suzuki India Ltd’s) Alto, (Hyundai Motor India Ltd’s) Santro and (Ford Motor India Ltd’s) Figo, and Alto was an obvious choice," he said.

The small car will be designed by Renault’s design team in Mumbai. “The entire project will be worked out of India," this person said. “The idea is to make and sell the car in India, and export it to other markets where there is a demand for such cars."

“We have a small, but strong team of at least 15 people there (design team)," said Nassif. “They are capable of taking on any project."

WSJ had said, citing Renault’s spokeswoman, that the project has no bearing on an earlier project studied by Renault and Indian motorcycle maker Bajaj Auto Ltd to develop a car that would retail for $2,500 (Rs 1.3 lakh today) and compete with the Nano made by Tata Motors Ltd.

The vehicle being studied by Renault and Nissan “will certainly cost more than €2,500", the newspaper quoted Renault’s spokeswoman as saying.

Also Read | Renault launches SUV ‘Koleos’ in India

Maulik Pathak in Ahmedabad contributed to this story.