Capacity of the Sanand factory in western India’s Gujarat state will start at 250,000, but Tata expects to increase production by 100,000 per year down the track.
Tata is currently struggling to meet demand for the 123,360 rupee ($3146) microcar in India, with the company initially receiving 206,703 orders last April.
Delivery began last July for the entry-level 624cc Nano which features no air conditioning or radio and just one windscreen wiper.
Tata Chairman Ratan Tata said the Nano had an important role to play in Indian society.
“Our effort was to give people of India an affordable car,” he said. “We are giving people of India a chance for personal transport.”
Tata also has plans to sell a higher-spec version of the Nano in Europe from late 2011.
Analysts have predicted that India’s new vehicle market could double to three million in as little as five years time, and expect inexpensive cars like the Nano to make up one-third of those.
The nation’s two largest car manufacturers – Maruti Suzuki and Hyundai – are already well immersed in the market, while other global companies are set make a splash in the short term.
Renault is known to be working on a new low-cost vehicle specifically for the Indian market, while Nissan has teamed with local carmaker Bajaj Auto to put a $US3000 ($3600) microcar on the roads by 2012.