The proposed car is likely to be built on the platform the company developed for its much awaited sedan, Etios, launched last week in the country.
Yoshinori Noritake, chief engineer, product planning, said, "The structure for Etios has been designed in separate files.
"Components can be integrated or eliminated, according to required specifications. The platform has a lot of potential and can be used to develop a smaller car."
TMC, which has invested Rs 3,200 crore (Rs 32 billion) for developing the Etios platform, may also consider a multi-purpose vehicle based on it.
The investment includes the cost of setting up a new facility which would exclusively roll out 70,000 units of models belonging to the Etios family every year at Bidadi, Karnataka. Etios has been developed by a team of 2,000 engineers in India and Japan over four years.
Noritake added, "While for our other cars, engineers took designs to suppliers and gave them specifications for components, with Etios it was the opposite.
"We researched with suppliers on the materials available and went back to the drawing board to build cars at aggressive
pricing points for the Indian market.
"The learning has been immense. The engine compartment for the Etios is spacious and can be modified and utilised for developing vehicles across segments."
Toyota, which is present in India through a joint venture agreement with the Kirloskar Group (Toyota Kirloskar Motors, India), has announced plans to introduce the Liva in April 2011.
While Etios is priced between Rs 496,000 and Rs 686,000, the Liva is expected to be tagged between Rs 430,000 and Rs 480,000.
The cars are the cheapest in Toyota's portfolio.
TKM intends to double sales in India next year to 1,40,000-1,50,000 units, on the back of Etios and Liva. The company sells the sedans, Toyota Corolla Altis and Camry, along with the multi utility vehicle, Innova.
TKM aims to capture 10 per cent of the Indian car market by 2015. Overall, 1.5 million cars were sold in the country in 2009-10.
Globally, Toyota was the world's largest car maker in 2010, despite its consolidated sales declining by 4.4 per cent to 7.24 million units from the previous year.