Tata Motors is planning to launch a Nano model that will run 40 kilometres on a litre of diesel, matching the mileage of a typical 180cc motorcycle.

It will be the most fuel-efficient car in India.

The launch is expected this financial year.

A senior executive of Bosch India, which is helping Tata Motors develop the engine for the model, said, "We have worked with Tata Motors for Nano's petrol version and we are working with it for the diesel version too. The car has a two-cylinder, 700cc engine which develops healthy power without compromising on fuel economy. Although official test figures have not been revealed, we expect it to run 40 km on one litre of diesel."

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A Tata Motors spokesperson said: "You are aware that Tata Motors continuously improves its products. But we do not provide guidance on our innovations."

At 40 km per litre, the running cost of the new Nano will be Rs 1 per km.

The capacity of the fuel tank is expected to be 15 litres.

For Tata Motors, the diesel version could finally attract customers opting for two-wheelers the original idea behind the Tatas' Rs 1 lakh (Rs 100,000) car project. For instance, Bajaj Pulsar 180, which costs Rs 78,000, ex-showroom, Mumbai, runs 40 km on a litre of petrol.

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However, Bajaj Auto, too, is working on a petrol car with Renault and Nissan and aims to offer 40km/litre. The car is slated for launch in 2012.

Nano is the largest-selling Tata model in India with monthly sales of around 8,500.

The country's largest selling car, Maruti Alto, records monthly sales of 25,000 a month.

With increased fuel economy, Tata Motors is aiming to target Maruti Suzuki, the country's largest car maker, whose unique selling proposition is mileage.

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It markets Tata Indica on the basis of its mileage of 20-25 km/litre, claimed to be the best in the industry.

Although the price of the diesel Nano is yet to be finalised, market experts say it will be 15-20 per cent more than the petrol version.

The base version of Nano costs Rs 1.5 lakh (Rs 150,000) in Mumbai, ex-showroom.

The model is expected to do well as diesel is subsidised in India, unlike petrol. In Mumbai, unbranded diesel is 33 per cent cheaper than petrol.

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From the low of 509 units in November last year, Tata Motors has been able to increase Nano sales through network expansion and easier availability of finance.

The company recorded sales of 8,707 units last month.

The petrol version of Nano, which gives 20-25 km/litre, and Tata Indica are the most fuel-efficient cars in India at present.