Renault-Nissan has announced that it will work with an Indian company called Bajaj Auto to produce the world’s cheapest car, even cheaper than the Tata Nano. An agreement was signed and the partnership is set to introduce the new low-cost vehicle in 2012.

Under the agreement, Bajaj will handle the design, engineering as well as the manufacturing while Renault-Nissan will focus on marketing, branding and the sale of parts. CEO Carlos Ghosn revealed that the cost of the car will be lower any car made in India today, pointing to a price tag that would be cheaper than the Rs 1 lakh carried by the Nano.

With India to become the primary market and exports to emerging markets to be made later, the new vehicle is expected to feature a mileage that is better than 20 kilometers per litre. The car will be built in India and will target India’s emerging middle class. Both companies actually announced a partnership last year but apparently there were some disagreements, which have now been resolved. Pictured above is the Bajaj Lite concept that was shown in 2008.