Volkswagen India has begun assembling engines at a new plant built within its Chakan factory. A new engine testing facility has also been set up here. The German automaker has invested €30 million in the new plant, taking VW’s total investment in India to €710 million.

Inaugurated on Tuesday by Maharashtra Chief Minister Devendra Fadnavis, the plant has a capacity to make 98,000 engines a year in two shift operations.

The first product to roll out from the plant is a 1.5-litre diesel engine developed for the Indian market. It will now be used in the VW Vento, VW Polo GP and Skoda Rapid — the three models made at Chakan.

The Polo GP was launched last year with a diesel engine imported from Poland. The engine will now come from the Pune plant.

Of the 166 components in the engines, localisation had been achieved for 29 and further localisation is on the cards in the second phase later this year. The company expects a maximum of 50 parts to be sourced locally.

“It was a challenge to convince sceptics (in Germany) and get approval for an engine production facility,” Mahesh Kodumudi, President and MD, Volkswagen India said.

Explaining that the scepticism revolved around doubts on whether the India supply base was ready for high technology products, he said the project’s success had shattered doubts on the quality of Indian parts and paved the way for wider localisation.

Last year, VW India exported 65,000 units, over half its total production of 1,11,444 units from Chakan, and sent kits to Malaysia for another 4,500 cars. In addition, components worth ₹1,200 crore were exported to group plants worldwide by suppliers.

This year (2015), the company, which Kodumudi said had achieved operational profitability, did not expect any major growth over last year. Growth was expected to pick up after new models are introduced, he added.

Make Maharashtra a hub Chief Minister Fadnavis urged VW to make Maharashtra its global hub. Speaking at the launch of the engine facility, he promised a host of measures to improve the ease of doing business. Among these was cutting the number of permissions needed from 76 to 25, a single IT platform for accountability, and improved labour laws. He also promised changing laws for land acquisition outside of industrial land and decentralisation of powers for this purpose.

If India had to grow at 8 per cent, the State needed to grow by 10 per cent, Fadnavis said.

Earlier, Industry Minister Subhash Desai said that the State was ready to “roll out the red carpet and roll up the red tape”.

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