In the application filed with the board, Honda has stated that a percentage of the equity in the new subsidiary -- Honda Motorcycle and Scooter India -- would be divested in favour of its joint venture partner in India the Hero group.

However, the extent of stake to be divested and the time frame for the same is yet to be decided. The equity would be divested either in favour of the Hero group or Hero Honda Motors Ltd (HHML).

This would mark Honda's re-entry into the Indian scooter market having severed ties with the Arun Firodia-run Kinetic Engineering Ltd. Industry ministry officials said that the proposal is likely to sail through with the FIPB as its erstwhile partner has not voiced any concern against the proposed subsidiary.

"TheFirodias are not against the venture. They have not even once asked the ministry to scuttle the plans," the sources added.

The final models, their positioning and pricing would be detailed later. "The modalities are being finalised in Japan and in a few weeks, the final details would be available," company sources said.

The subsidiary, to be capitalised at $43 million, is set to start production of 4-stroke scooters at an initial pace of 100,000 units a year, by the second half of 2001 at a new plant to be built near Delhi.

Honda plans to raise the annual output to 200,000 units by 2004 and production of a 4-stroke motorcycle is also planned in the future. It will invest $34 million in the new plant.

The company would employ 500 staff initially and plans to increase to 1,800 by 2004.

Honda, through this subsidiary, would focus on scooters for a period of five years and, thereafter, Hero Honda and the Honda subsidiary shall expand the range to encompass all two and three-wheelers.

"The subsidiarywould initially produce scooters. But if and when the market demand, we have the option of making three-wheelers also from the unit," the sources said.

HHML and HMC have arrived at a strategic understanding to this effect at a high level meeting last week. The companies have embarked on an aggressive plan to increase the market presence in India.

HHML, a leader in the motorcycle market, would increase the existing model line-up with a continued focus on motorcycles. Hero Honda chairman Brijmohan Lall had said the company would continue its focus on motorcycles and resources would be directed to adoption of contemporary technologies and steady expansion of capacities.

"With the target of gaining a formidable market share in two-wheelers, both the companies have decided to work in a complementary arrangement," he said.

Honda Motor's senior managing director K Suzuki had said Hero Honda and HMC enjoy a very synergetic relationship. "Honda intends to further build on its long-term association by enhancingcooperation and support to Hero Honda in terms of technology, newer models, information and knowledge sharing to ensure ambitious growth plan for Hero Honda."

India being an important market for Honda, the Japanese major is planning to expand its activities in the newly formed research and development centre in Delhi. This would provide the most suited to both the companies with a shortened product introduction cycle to meet the fast changing needs of the Indian customers.

Meanwhile, Nobuhiko Kawamoto, director and advisor, Honda Motor Company, had said here that the first scooter model under the new venture would be targetted at a small niche segment.

"We are not looking at introducing a model to compete with the Kinetic. Our model would be a totally new vehicle targetted at a small segment initially. Later, we would be introducing a range of products through the susidiary."

Regarding plans to foray into the three-wheeler market, Kawamoto said though no concrete plans have been firmed up at present,the option is being mulled. "It would not be a major problem for us to shift gears to three-wheelers. It will be simple for us amd will also expand our presence in the Indian market."