Suzuki Motor is likely to locate a planned $1.3 billion passenger car factory in Gujarat, Japan's Kyodo news agency said on Wednesday, as the automaker looks to expand capacity in its key market.
The report came two days after the company said it wanted to end its alliance with Volkswagen, a tie-up that had been expected to help Europe's biggest car maker expand on the Indian subcontinent.
"We haven't come to a decision yet. We plan to announce the location of the plant by the end of October," Suzuki spokesman Ei Mochizuki told Reuters.
He added, however, that the automaker's chairman and CEO, Osamu Suzuki, visited Gujarat last week.
Commenting on the factory, a Maruti Suzuki spokesman in New Delhi said: "Nothing has been finalised yet."
Suzuki controls about half the Indian car market through a 54.2 percent stake in the country's top car maker, Maruti Suzuki.
If it adds capacity in Gujarat, the automaker will join rivals who are building plants in the business-friendly state, turning it into an upcoming auto hub.
Maruti Suzuki currently operates two manufacturing facilities at Gurgaon and Manesar, both in north India, with total manufacturing capacity of one million cars per year.
In July, Ford Motor Co said it would build a $900 million production plant at Sanand in Gujarat, doubling its investment in a country where foreign car makers have been ramping up investment, attracted by a growing market.
Earlier this month, PSA Peugeot Citroen said it was investing around 650 million euros ($933 million) to build a new manufacturing plant in the same city.
Tata Motors also makes the Nano, billed as the world's cheapest car, in Sanand.
Car sales in India, the world's second-fastest growing major auto market after China, rose at a breakneck 30 percent pace in 2010/11 , but have fallen in both July and August, the first time in nearly three years, as high interest rates and rising costs hit demand .
LABOUR TROUBLES
Maruti Suzuki said last month it expected to post single-digit sales growth this fiscal year, a far cry from its 25-percent climb last year, due to tightening demand and rising competition from the likes of South Korea's Hyundai Motors and domestic rivals.
The company has also battled labour disputes at its factories in north India.
In June, about 800 workers went on a 13-day strike at its Manesar plant, crippling production and leading to more than $90 million in lost output.
Production at the same plant has been severely hit since workers walked out on Aug. 29 after the firm dismissed some workers for sabotaging production and demanded all workers sign a "good conduct bond".
It is already building a second unit at Manesar to add production capability of another 250,000 vehicles a year, scheduled for completion by April 2012.