America's largest carmaker General Motors is planning to invest $1bn in India to boost production in its main local plant and transform the country into a global export hub.
The company, which has the capacity to produce over 280,000 cars a year in India, will decrease this to 220,000 a year by 2025 as it stops making cars at one plant and raises capacity at its second plant in India.
For the past few years, India's automobile market has been sluggish, with annual sales of less than three million cars. However, by 2020 analysts expect India to become the world's third-largest passenger vehicle market after China and the US.
GM's sales are falling even after two decades in India and it is still losing money. The company lost 38.5 billion rupees (USD 604 million) in India in the year to March.
The recent Indian economic slowdown has left Western car manufacturers with excess production capacity. This has prompted some carmakers such as Volkswagen and Ford to increase exports from India to use their capacity and benefit from low labor costs and economies of scale.
GM's investment in India is part of its plan to invest $5bn over several years to develop a global family of Chevrolet vehicles with Shanghai Automotive Industry Corp (SAIC).
The company has 2 plants in India, one in Gujarat state and the other in Maharashtra that together can produce over 280,000 vehicles a year.
The Gujarat plant, which has a maximum capacity of 110,000 vehicles a year, will shut by mid-2016. GM's Talegaon plant in Maharashtra has a capacity of 130,000 vehicles a year, which can go up to 170,000. The company plans to increase this to 220,000 vehicles a year by 2025 of which 30 percent will be for exports to the Middle East and Africa.