India's car market is growing at a rate of more than 10 per cent a year, with small vehicles accounting for 80 per cent of all sales in the country.
It also recently overtook Japan as the largest market for compact or sub-compact cars, according to JD Power and Associates, a marketing information firm, and experts say the world's second most populous country is quickly becoming a hub of small-car manufacturing.
Tata announced over the weekend that its December sales more than doubled to 51,627 units owing to a recovery in the industry. Its sales during the month recorded a growth of 105 per cent compared with sales in December 2008.
Toyota and Volkswagen (VW) both say they aim to capture 10 per cent of India's auto market in the coming years.
VW unveiled at the show its locally-made Polo - a compact hatchback due to hit India's roads in March, and meant to go head-to-head against Maruti-Suzuki's Swift.
"In terms of total volume of sales we are not a big player, but this will change it," Lutz Kothe, VW's India marketing manager, said.
"We are trying to expand our portfolio and refresh our products to offer customers new cars"
IV Rao, senior director of Maruti-Suzuki
Toyota was also showing off its first compact model designed specifically for the country's buyers, called the Etios. Toyota says the model features adapted suspension for India's rough roads, plenty of storage space for large families and an engine tailored to city driving.
The Japanese manufacturer's plan is to export the car from India.
Total car sales for India are forecast to reach two million this year and triple in the next decade, according to industry estimates.
Maruti-Suzuki, which is majority-owned by Japan's Suzuki, said it was aware of the pressure it faced from outside competition.
"We are trying to expand our portfolio and refresh our products to offer customers new cars," IV Rao, senior director at the group, said.
Struggling US automaker GM was hoping its new $7,000 compact, the Beat, would boost its India sales by 30 per cent this year.
The company had announced on Monday that GM' vehicle sales in China last year jumped 66.9 per cent from a year earlier.