Looking at the growing demand for small cars in India and the possible profitability, Germany based luxury car maker Mercedes Benz is investing in development of a premium small car specifically for Indian market. Daimler, which is one of the world’s major luxury auto manufacturers and the parent company of Mercedes Benz, is planning to set up a full manufacturing facility in Chakan, Maharashtra along with brand centers in major metros like New Delhi, Bangalore, Chennai and Mumbai.

The bulging Indian car market witnessed a massive 13,69,174 number of cars, which equates to 30% increase than the previous year, sold between April and December of 2010.

With the various global carmakers such as Hyundai, Honda, Volkswagen, and Skoda with BMW joining the list recently, Merc’s car is being developed with help from its R&D centre in Bangalore based on the next-generation Mercedes Frontwheel Architecture (MFA) platform.

The investment is said to be around Rs 6,000 crore according to a senior company official, which is way more than it’s globally sold A and B class cars already being marketed in India. The official further added that the company will soon start discussing the development of car with the possible Indian vendors.

While in the recent three to four years other international car manufacturing companies have already launched premium small cars, BMW also plans to launch its premium small car Mini in India. Although the costs of these cars fall in the range of Rs. 5 to 8 lakh, Merc's car would be priced at a higher cost.

Mercedes has big plans for the Indian car market as it completes its global presence for 125 years and the MFA platform, with diversified patterns and wheelbases is equipped to support green technologies, including fuel-cell power train.