* Plans to make India export hub for its small cars by 2012

* Will provide it a competitive edge in the global market

Toyota Kirloskar Motor (7203.T) is planning to make India an export hub for small cars by 2012, including of a compact car that is being designed in Japan for Indian conditions.

Toyota, which owns 89 percent of the Indian venture, is set to start production of the compact car at its new plant in the southern state of Karnataka, initially with a capacity of 70,000 vehicles, which can be ramped up to 100,000 if the need arose.

The compact car being designed in Japan is being developed specifically for India.

But after its launch and taking into account the response, we will also be looking at the export market, Shekar Viswanathan, deputy managing director of the Indian unit's commercial division, said on Friday.

It would initially look at exports to South Africa, where demand was high, he said.

The small or compact car segment accounts for about 70 percent of total sales in India, with market leader Maruti Suzuki (MRTI.BO) having more than 60 percent share of the sector.

Toyota is not the first to pick India as a sourcing hub for small cars. Companies such as General Motors [GM.UL] and South Korea's Hyundai Motor (005380.KS) have similar plans.

Last week, Japan's Suzuki Motor Corp (7269.T) announced a $310 million investment to set up a research and development unit in India that would eventually serve as a R&D hub for small cars for the company outside Japan. [ID:nBOM543979

Toyota Kirloskar, which offers the Innova utility vehicle, Corolla and Camry sedans in India, hopes to sell more than 55,000 vehicles in the fiscal year ending March 2010, he said.

Earlier, the company had said it expected to maintain its sales at last year's level of 52,000.

The demand climate has changed, things are looking up as we saw in June and July sales, he said, noting that in the four months from April the company had sold about 20,000 vehicles.

In the fiscal year ending March 2009, about 1.2 million passenger cars were sold in the country.

India is one of the few markets where Toyota is going ahead with its investments. (Editing by John Mair)