By Swati Khandelwal, CNBC-TV18

Carlos Ghosn's small car dream is a step closer to reality. After months of negotiations, Bajaj -Renault- Nissan have inked an agreement for a USD 2,500 car. The tripartite alliance has left room for a price revision.

It's a small car but a big idea, says Bajaj Auto MD Rajiv Bajaj and the idea is now ready to take shape. In a tripartite agreement, Bajaj- Renault-Nissan will build a USD 2,500 car or a Rs 1lakh car, code named ULC.

Interestingly USD 2,500 as the company release says, is " the wholesale starting price range" , which suggests the USD 2,500 figure is not sacrosanct and even if it stands will not be the retail price. The small car will be Bajaj's maiden entry into the passenger car market.

Bajaj Auto will own 50% in the small car JV and Renault and Nissan will hold 25% each. The car will be made at a new plant to be constructed in Chakan and the initial planned capacity will be 4,00,000 units per year. Sales will start in early 2011 in India and eventually be exported to other markets as well.

Interestingly, sources say, the engine of the small car will be made only by Renault and Bajaj, in a separate JV. The same engine will also be used in Bajaj's LCV and small trucks. Since Nissan has already identified Ashok Leyland as its LCV partner, Nissan will not be involved in the same. An announcement on the pricing, branding and investments is expected by July. But sources say the project cost would be about Rs 1,000 crore.

Positioned as an intracity car, will Bajaj's small car take on Tata Motors’ people’s car in spirit or price or both- only time will tell.