German car maker Volkswagen is betting on India with a new plant in Pune with an annual capacity of 110,000 vehicles and commitment of 580-million euro investment as the economic slowdown in Europe and elsewhere worsens.

The Pune plant will begin production of the Skoda Fabia compact car in May 2009. Production of a hatchback version of the Volkswagen Polo specially developed for the Indian market will be added from 2010.

''With a total financial commitment in India amounting to 580 million euros, the Pune plant represents the largest investment to date by a German company in the country,'' the company said in a release.

The facility has a maximum annual production capacity of 110,000 vehicles destined for delivery to the Indian market, it said.

''With the start of production at our new plant in Maharashtra, the Volkswagen Group has conclusively arrived on India's emerging market. 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,'' Heizmann said at the opening ceremony.

Despite the impact of the financial and economic crisis India is still an attractive market for auto manufacturers. Experts predict that the Indian automobile market will grow from the present 1.2 million vehicles to over 2 million vehicles by 2014.

The Volkswagen Group has already been building Skoda, Volkswagen and Audi models at its plant in Aurangabad since 2001. The group is also expanding its distribution network in the country.

''Volkswagen and its cars are already visible testimony to 'mobility – made in India'. So I am all the more delighted that our new plant in Pune sends a clear signal for the further development of our brands in India and for the people in this region,''  Jörg Müller, president and managing director of Volkswagen Group India, said at the opening of the company's new facility at the Chakan industrial park in Pune.

The Pune plant is one of the most modern in the Volkswagen Group, with a high level of vertical integration and a large share of local suppliers. The facility is the only production plant operated by a German automaker in India that covers the entire production process from press shop through body shop and paint shop to final assembly.

Volkswagen plans to employ some 2,500 people at the Pune plant by the end of 2010. The investment agreement to build the new plant was signed in November 2006.

In 2008, the Volkswagen Group produced 6.347 million vehicles worldwide, some 66.2 per cent (4.201 million) of which were built outside Germany. The Pune plant is the 61st in the worldwide production network of the nine-brand Group.

To mark the opening of the new plant, Jörg Müller presented an ambulance to the Red Cross hospital in Pune and announced that Volkswagen India would support a local primary school.