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Hybridization with engine downsizing is a regular trend to achieve fuel economy benefits. However this leads to a development of new downsized engine which is very costly and time consuming process, also engine downsizing demands for expensive higher power electric system to meet performance targets. Various techniques like gear ratio optimization, reducing number of gears, battery size and control functionalities optimization have been evaluated for maximum fuel economy keeping system cost very low and improving vehicle performance. With optimized gear ratios and reduced number of gears for parallel hybrid, it is possible to operate the engine in the best efficiency zones without downsizing. Motor is selected based on power to weight ratio, gradient requirements, improved acceleration performance and top speed requirement of vehicle in EV mode.