The new plant, established with €580 million ($767 million) of investment near Pune, southeast of Mumbai, will begin building the Skoda Fabia compact car in May, the company said in a statement. An Indian version of the VW Polo hatchback will be added in 2010, it added.
All cars produced at the 2.3-million-square-metre (575 acre) plant - VW's most modern, which should employ 2,500 people - will be destined for the Indian market. VW entered India in 2001, opening up a plant in Aurangabad, and also in Maharashtra state, to build Skoda, VW and Audi cars.
Officials said that despite the global economic crisis, India's automobile market has "huge potential going ahead."
"India's automobile market will grow each year from the current 1.2 million vehicles to over two million vehicles by 2014," VW board member Jochem Heizmann said. "Thanks to the local production of Volkswagen and Skoda models in Pune, we will benefit even more from enormous growth on the Indian automobile market in future," he said at the opening ceremony.
The new VW Beetle is scheduled to make its debut in India by the end of next year. Like its rivals, VW has been hit by a sharp slump in the global automobile market but says it has fared better than its competitors, in part owing to a growing presence in emerging markets.
The German auto giant sold nearly 19,000 vehicles in India by the end of December 2008 - 47 percent up on the same period a year earlier. Worldwide, VW made 6.34 million vehicles. Of those, two-thirds - or 4.2 million - were built outside Germany. India's Tata Motors is also betting on big growth in the domestic market, having launched the world's cheapest car, the Nano, last week.