Volkswagen AG, Europe's largest car manufacturer, hopes to run its plant at Chakan near Pune to its full initial capacity of 110,000 units in two-three years, targeting a market share of 8-10 per cent.
The factory, inaugurated on Tuesday, will initially build Skoda Auto AS's Fabia hatchbacks from May before beginning production of a hatchback version of Volkswagen Polo in 2010.
With this, VW becomes the last of the world's biggest auto manufacturers to mark its foray into India through a full production facility.
The plant comes at a time the company is cutting production and laying off workers in Europe, highlighting the severity of the downturn. In India, however, VW has promised uninterrupted flow of funds that will be invested in product development, improvements in dealer network and purchase of components.
The company, already the largest overseas carmaker in China, is boosting its presence in India, as auto sales in the world's two most populous nations withstand the global recession. Car sales in India and China rose more than 20 per cent last month, compared with an 18 per cent drop in Europe.
"China and India are the two standout markets among emerging economies that will perform relatively better than anywhere else," said Tim Armstrong, director of Global Insight Inc. from Paris.
The company plans to achieve higher localisation levels within a short period, which will help it price its products better without compromising on margins.
"One of the pillars of success for us will be a very high degree of localisation. Despite the economic downturn, we will remain 100 per cent committed to our Indian ambitions," said Jochem Heizmann, member of the Board of Management of Volkswagen Aktiengesellschaft.
The company will begin with 50 per cent localisation next year, when the Polo hatchback undergoes production. This will be gradually increased to 80 per cent in two years.
"We see the Indian car market growing to 2 million units per annum by 2014 from 1.3 million at present," added Heizmann.
Besides the Polo hatchback, VW will roll out its smallest and cheapest modern car, the Volkswagen Up! (a compact car of the size of a Hyundai Santro) from the Chakan plant by 2012-end.
VW's foray into India contrasts with Honda Motor Co and Renault SA, which have both delayed investments here to preserve cash amid the global sales slump.
In India, the carmaker currently sells Jetta and Passat sedans, as well as Touareg sport-utility vehicles. It assembles Jettas and Passats at a Skoda factory in Aurangabad, Maharashtra.
The company will also introduce its full range of commercial vehicles in the country, starting with a light commercial vehicle (a mid-sized passenger bus).
However, it has refused to give a timeline for the launch. VW's India plant has been designed in such a way that it can produce any of its brands in India, including models of subsidiary companies like Audi and Skoda.
Skoda already has a plant in Aurangabad which produces all of its own models, in addition to the Audi A4 and A6 and the Volkswagen Jetta and Passat.