The company, which has a joint venture -- Toyota Kirloskar Motor -- with the Kirloskar Group for its Indian operations, may set up the new plant at its upcoming second factory in Bangalore.

"In order to localise production (more), in future I am very keen to set up a transmission and engine unit in the second plant," Toyota Kirloskar Motor (TKM) Managing Director Hiroshi Nakagawa said on the sidelines of Environmentally Friendly Vehicles Conference here.

TKM is investing Rs 3,200 crore in the second facility, which will have an initial capacity of 70,000 units as it gears to launch a small car in the Indian market by early 2011. Depending on demand the firm may increase the installed capacity to 200,000 units.

"The initial production (at the second plant) will be 70,000 units and depending on demand we will ramp it up to 200,000 units," Nakagawa said.

When asked if hiking the installed capacity from the proposed 100,000 units to 200,000 units will call for extra investments, Nakagawa said, "if it requires we will consider, but we will do it step by step."

He said the idea of having an engine and transmission plant in India was to increase localisation levels from the current average of 50 per cent.

The company currently produces its vehicles, including the popular multi-utility van Innova and sedan Corolla Altis, from its first plant in Bangalore that has an annual capacity of 80,000 units.

When asked if both petrol and diesel engines will be considered for manufacturing in India, he said, "it will depend on customer requirements."