Fujio Cho, president of Toyota Motor Corporation said the Japanese car maker is currently "positively" studying the potential of launching such a car.

Company officials said at the India launch of Toyota's new multi-purpose vehicle Innova that Toyota fully understands the remarkable potential of the Indian automobile market.

The passenger car market in India is projected to grow to two million units by 2010, they said.

Cho said in order to achieve the company's target to capture ten per cent marketshare in India, it would have to launch other models like a compact car.

Toyota Kirloskar Motor, a joint venture between Toyota Motor Corporation and Kirloskar Group, would expand the capacity of its Bidadi plant, depending on the success of Innova, Cho said.

The plant on the outskirts of Bangalore has a capacity of producing 60,000 units annually. Cho also announced that India has been named an "important vehicle manufacturing base".