Honda Motor is working on a small car with 1.2 litre engine for the Indian market at its research and development facility in Japan.

The model will be dedicated to India, but will also serve as a global product in the small-car segment for the company.

Masahiro Takedagawa, head, Honda Siel Cars India, said: "We are eyeing the premium hatchback segment and the new product currently being developed will conform to India's small car definition: 1.2 litre petrol engine with a length of less than 4 metre. This will enable us to avail of excise concessions in the country. At our second manufacturing facility, our aim is to manufacture 150,000 units of small car, which will be launched in another 2-3 years."

Honda has finalised an investment of Rs 2,000 crore (Rs 20 billion) for the new manufacturing facility of which Rs 300 crore (Rs 3 billion) will be invested in a powertrain manufacturing facility.

The new factory will have an annual capacity of 250,000 units, and is expected to start in 2009. At present Honda is negotiating with four states - Rajasthan, Uttar Pradesh, Tamil Nadu and Maharashtra - for a 150-acre plot.

"While India will be the lead country for the small car, we plan to sell it in other markets also. However, we will consider Indian infrastructure and localisation plan while developing it." Takedagawa said.

Honda, which had sold 43,000 units last year, hopes to touch 60,000 units in this financial year. It launched the new upgraded version of its luxury sedan, Accord, in Delhi on Tuesday.

The 2.4 litre base version has been priced at Rs 14.92 lakh (Rs 1.49 milion), while for the top end automatic versions, the 2 litre engine model comes at Rs 15.62 lakh (Rs 1.56 million) and the 3 litre V6 engine model has been priced at Rs 17.32 lakh (an increase of Rs 38,000).

The company will continuously upgrade its existing models in the coming years. N K Goila, vice-president, administration, said "We are targeting sales of 70,000-75,000 units for the next fiscal and are increasing our dealer network to 100 to achieve the aim. We have been making consistent profit in India over the last five years, and the net profit stood at Rs 220 crore (RS 2.2 billion) in 2005-06."

The company has shelved its plans to introduce the diesel Accord in the Indian market, owing to low global sales.