To meet the new demands, automakers intend to build cars that aren't hard on the pocket. This is why Tata Motors released the Nano dubbed the new "People's Car." As rivalry dictates, other automakers are also planning to introduce cheap cars.

PriceWaterhouseCoopers predicted that over the next 5 years about half the growth in auto sales will come from Russia, India, Brazil and China and most of the demand will be for small cars.

In 2007, Consultancy firm Ronald Berger estimated that global demand for small cars, costing less than $10,000 (£5,000) would increase by 30%. Already there is considerable demand for small cars throughout Europe and Latin America where Volkswagen's Gol, Renault's Clio and Nissan's Tsuru sell extremely strongly, according to Times Online.

But Tata Motors Chairman Rajan Tata said that while the Nano will undoubtedly compete with other small cars, the Nano is actually the first car in a whole new area of the market.

"The way I see it, this vehicle will cannibalize some of the lower-end car market and some of the higher-end motorcycle and scooter market. It will eat into both of those markets but it will also create a market of its own," said Tata. "It will expand the market by creating a niche that did not previously exist. It may well cannibalize some of the higher-end car market, but to a small extent, and probably only when people look to buy a second or third car."

The 5 cheapest cars worldwide:
1. Nano. Manufactured by Tata Motors in India. Price: $2,500 (£1,250)
2. QQ3. Manufactured by Chery Automobiles in China Price: $5,000 (£2,500)
3. M800. Manufactured by Suzuki-Maruti in India. Price: $5,200 (£2,600)
4. Merrie Star. Manufactured by Geely Automobiles in China. Price: $5,500 (£2,750)
5. S-RV mini SUV. Manufactured by Geely Automobiles in China. Price: $5,780 (£2,890)