Honda plans to establish the company, to be capitalised at $ 43 million, by October 1999 and start production in the latter half of 2001. It plans to initially employ around 500 people initially and take it to 1,800 by 2,004.

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 is yet to be decided. The equity would be divested either in favour of the Hero Group or Hero Honda Motors Ltd (HHML), HHML director Pawan Munjal said in New Delhi on Friday.

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

``The Firodias are not against the venture... they have not even once asked the ministry to scuttle the plans,'' the sources added. Meanwhile, Munjal stated that 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.''

The subsidiary is set to start production of 4-stroke scooters with an initial capacity of 1,00,000 units per year. Honda plans to raise the annual output to 2,00,000 units by 2004. It will invest $ 34 million in the new plant.

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 andthree-wheelers.

``The subsidiary would initially produce scooters. But if and when the market demands, we have the option of making three-wheelers also from the unit,'' Munjal 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 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.''

Honda Motor's senior managing director K Suzuki said Hero Honda and HMC enjoy a synergetic relationship. ``Honda intends to further build on its long-term associationby enhancing cooperation 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.