Renault and alliance partner Nissan are planning to take on the Tata Nano for the title of the world's cheapest new car.
Design and manufacturing will be done by Indian firm Bajaj, while Renault and Nissan look after sales and marketing.
The Tata Nano currently sells in India from $2,000.
Carlos Ghosn said the cost of making the Renault Nissan vehicle, aimed for launch in 2012, will be lower than any other car in India.
Ghosn believes the new car market in India could triple to 6m vehicles in 10 years.
GM, Ford and Toyota are all developing cheap cars for its market.