Anyone who remembers the initial events would remember very well that the Nano was overbooked initially. So it is not the price point that led to lowered sales.

Cheap in price is in general associated with cheap in quality as well - market psychology. People buy it only when they feel it is good enough. Nano having been already branded and popularized as cheap in price got severely damaged by a few glitches and got rebranded as cheap in quality.

Essentially, production delays and a few unpopular news items made people reconsider their choices and before Nano could recover the market is filled with cars in the small segment made by Honda (who thought of a Honda car in small segment), Maruti/Suzuki, Ford, Hyundai...etc. Also remember that it was Nano which spawned a new generation of small segment cars by various manufacturers who would otherwise have not considered the option at all.

Tata should pump some money into the perhaps now forgotten Africar project.

A plywood car might suck some of the perceived stigma off the nano.

Perhaps though, it's time to think about alternatives to building yet more 4 wheeled polluters, though it's morally hard to tell Indians that they should stick with their scooters.