MUMBAI (Reuters) - India's biggest vehicles maker, Tata Motors, is exploring cheaper ways to manufacture and sell its planned small car, but analysts warn that safety may suffer while profits shrink.

New York-listed Tata Motors -- India's third-biggest car maker behind Maruti Udyog and South Korea's Hyundai Motor -- plans to launch a low-priced car in about three years as it seeks a location for its plant.

"We are looking at tax subsidies and other fiscal incentives being offered, and we have also seen strong interest from other countries which are low-cost manufacturing centres," Managing Director Ravi Kant told reporters at a recent news conference.

Tata group Chairman Ratan Tata has spoken of developing a "people's car" that would be priced at about 100,000 rupees (1,250 pounds), making it accessible to the millions of riders of motorcycles and scooters who cannot now afford cars.

India's passenger vehicle market -- with sales of a million units a year -- is growing quickly as a result of rising incomes and cheap loans, but still only 8 in 1,000 Indians own a car, compared with 35 in Thailand and 450 in more developed markets.

"It is propelled by the opportunity, but there is also a social or dreamy side to it," Tata said in a recent interview to consulting firm McKinsey & Co.

"In India, you often see four people on a scooter ... it's a dangerous form of transportation. If we can make something available on four wheels ... then I think we will have done something for a mass of young Indians," said Tata, who estimates Tata could eventually sell 1 million units of the new car a year.

Maruti Udyog -- 54.2 percent held by Japan's Suzuki Motor Corp. -- had priced its first product, the mini 800, at less than 100,000 rupees when it launched 20 years back. The 800, for years the first car many Indian families bought, now costs more than double that, in line with inflation.

Tata makes the popular Indica hatchback -- the first completely indigenously made car -- and the Indigo sedan, besides utility vehicles. The new small car will be made with all the high-volume parts manufactured in one plant, Tata said.

The car would also use more plastic, rather than steel, and would be made at a very low-cost assembly operation, with some use of modern adhesives instead of welding to save costs, he said.

"It's not so simple to make a car at that price -- which is clearly a psychological mark -- which can be practical and safe, especially in the current scenario of high input costs," said Dipen Sanghavi at Pranav Securities.

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