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Polo Sedan not small enough for you? Volkswagen appears to be coming up with just the thing – if a Reuters report is to be believed – with a well-equipped A-segment sedan slated for launch in India by 2016 to battle a slump in sales.

Measuring under four metres long, the new India-built car will be eligible for a lower excise duty rate of 12% (versus up to 30% on larger cars). It’ll be a latecomer to the segment for sure, what with the Maruti Suzuki Dzire (Swift sedan), Hyundai Xcent and Honda Amaze long sparring for class honours.

It will, however, come with a number of high-end features (for India, anyway), like dual airbags and an automatic transmission, often found only on larger cars (or as options on its rivals). “That’s where we see the better future,” said VW director of passenger cars in India Michael Mayer. “Developing a car takes some time but in this particular case we took a rapid decision…to make it come to market as fast as possible.”

Mayer adds that VW will have to consider an expansion of its production capacity – currently pegged at 130,000 units a year – once the car comes to market, which the new agency said indicates the company’s ambition for export markets. No particular region was pointed out specifically, however.

He admits that the company will have to build the sedan on the same line as the larger Polo hatch and Vento (Polo Sedan) to cut costs. “We must find smart solutions,” Mayer said.

Volkswagen A-segment sedan rivals (clockwise): Honda Amaze, Maruti Suzuki Dzire, Hyundai Xcent

Volkswagen produced around 107,000 vehicles in the year to the end of March, with nearly two-thirds exported to other countries; a spokesperson said it plans to increase the figure to 200,000 by 2018.

The upcoming sedan had better sell in large numbers – VW has seen sales drop by 14% in the financial year ending March 31 to 45,000 cars. This compares unfavourably to a car market that has jumped 5%, according to data from the Society of Indian Automobile Manufacturers (SIAM).

Market researcher IHS has revealed that A-segment sedans and SUVs made up a sixth of the 2.6 million cars sold in India last year, adding that the segment’s sales has the potential to double to nearly one million units by 2020.

Tiny sedans are unique to India, Mayer said, because of the nations preference of the body style, adding that it makes the addition of high-end features and making the car look attractive – all the while keeping costs low – even more of a challenge.