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Volkswagen, Europe's leading automaker, signed a deal to build a 410 million euro ($539 million) plant in western India at a site state officials said will become "the Detroit of India."
Volkswagen is set to take on the Indian market by putting up a new factory
The new factory is reportedly set to produce up to 110,000 cars near the city of Pune, in the state Maharashtra by 2009, aimed at the local market for now although executives for the company said exports were possible at some point.
"India is one of the most interesting future markets for the global automotive industry," VW financial chief Hans Dieter Pötsch told reporters Wednesday in the capital New Delhi. "We are determined to develop the market potential without delay."
The plant is a triumph for Maharashtra, home to the country's financial capital, Mumbai. The state has reportedly battled with other industrial regions in India, such as suburban New Delhi, western Gujarat and southern Tamil Nadu, to entice car makers.
"All the major automakers are putting their plants here (in Pune)," said V.K. Jairath, Maharashtra's industries secretary.
Long-term interest in Indian market
VW is reportedly developing a car in 2007 for the Indian market
Before the new plant is fully operational, Volkswagen will start manufacturing its mid-sized Passat cars in India from mid-2007 at an existing factory of group company Skoda in Maharashtra.
Pötsch said Volkswagen would also be developing a vehicle "in the foreseeable future specifically tailored to the needs of the Indian market."
"This model will have a very attractive price while offering all the essential features of a genuine Volkswagen, with all the benefits of our brand," he said, after signing the agreement with Maharashtra Chief Minister Vilasrao Deshmukh, the state's top elected official.
The German manufacturer, which has been exploring a direct entry into the Indian market for nearly two decades, has said the new factory would employ about 2,500 people.
Car companies keen to access Indian market
Earlier this month, French carmaker Renault announced it would build its second plant in India, where it will construct the no-frills Logan car to take advantage of "important opportunities for growth and profitability."
Companies like Ford have already set up shop in India
Some 1.1 million passenger cars rolled off assembly lines in the year ending in March, with that number forecast to nearly double to two million by 2010, according to industry figures.
But automobile take-up remains low among India's population of 1.1 billion.
Other big car companies, including US automaker General Motors, Germany's BMW, Japan's Suzuki and Honda, and South Korea's Hyundai, have also been moving to invest in India and its low-cost production base. US automaker Ford has a plant in southern Tamil Nadu state.