The Palio is powered with a choice of two motors -- one adequate, the other a pure indulgence. The logical choice is the 1242cc 'Fire' motor. This is an evolution of the same engine that powers the Siena with the latest electronics and engine management systems. Designed to be a simple motor with extremely few number of moving parts, this belt-driven single cam engine with two valves per cylinder is extremely light and friction free, an advantage as far as fuel economy is concerned.
  
Both engines come with hydraulic tappets which does away with the need for checking valve clearance. The fuel system is now return-less and the engine software runs on a 32-bit processor. This allows it to adjust vital variables like spark timing and fuel delivery much faster. Both engines also use lighter and more efficient plastic intake manifolds that prevent the formation of incombustible fuel droplets. While the 1.2 motor makes 72bhp, the much punchier 1596cc twin cam motor makes a nicely rounded 100 horses. It also pushes out a beefy 14kgm of torque - it's called the torque engine after all. This engine however differs in certain key areas from the 1.6 engine found under the bonnet of the Siena and the Weekend. It now has a slightly larger displacement, a longer stroke and a newly worked head. This results in even more torque and an even better distribution of power throughout the power-band.
 
The performance of the 1.2 Palio is not exactly earth shattering but adequate all the same and what you would expect from a car with a power to weight ratio of 70.9bhp/ton. In the dash to 100kph, it can hold of the likes of the Santro but can't keep up with the Maruti's trio, the Zen, Wagon R and Alto VX.
  
Even the petrol Indica is quicker. In-gear acceleration times are not that impressive either and the 1.2 Palio is nowhere near as quick as its competition.
  
However, in the real world, the seamless power delivery and generous torque spread means that the 1.2 Palio felt faster than times against the clock suggested. In town, you can keep up with the flow of traffic, the engine pulling cleanly from low revs. It's only on the highway that you tend to want extra grunt for those critical overtaking manouvers.
  
The gearbox is different from the 1.2 Siena's with heavily revised ratios to suit the new engine characteristics. We found the gap between first and second gears too wide, this gearbox obviously meant to provide better economy.
  
The 1.6 Palio is a different animal altogether. You know you're in for a treat before you drive off with just the sound of that raspy exhaust note. To say that the 1.6 Palio sets new levels of performance for this segment is an understatement. In fact, the bigger-engined Palio is more in Honda City league. The dash to 100kph comes up in a very rapid 11.19 seconds, that's a second off the City's pace. However the gap narrows as speed builds up with the Palio pipping the City to the 160kph mark.
  
Driving the 1.6 Palio gives you the impression that you always have vast reserves of power on tap as it lunges forward in any gear. Downshift and get the engine into the meat of its powerband which starts at 2500rpm and the transition from cruise to cruise missile is rapid. Somewhere around 4000rpm the engine subtly steps up to another level and doesn't let up until the redline has been reached. The 1.6 Palio has gearing that is different to the similar-engined Siena which has a closer set of ratios whilst on the Palio they are more spaced out. Overall, the 1.6 Siena is shorter geared (especially fourth and fifth gears) which also explains why it leaves the Palio behind past 140kph.
 
The clutch in both cars had a nice take-up action and good bite but could have been grippier.