I'm not sure what the plan is now, but when the Nano was first unveiled Ratan Tata (the CEO) said that they would be focusing on selling the car in smaller cities.
The larger cities like Delhi and Mumbai have good public transport systems, and most people are pragmatic enough to realize that a train will get them to work faster (and cheaper) than driving in a car. I worked in Mumbai for two years, and I was earning more than enough money to own a regular car (and pay a driver!) but I still used public transport on a daily basis. The same is true for almost all of my peers.
I don't think there will be too many people buying this thing as a status symbol. I see it being primarily bought by lower-to-middle income families in the smaller cities, or in villages which are well connected to neighboring cities. If you ever visited India, you'd see some of these people taking their whole family on a single motorcycle which is dangerous.