Volkswagen began production of its Polo hatchback in India on Saturday.
The German carmaker aims to grab up to 10% of India's automobile market in the next four to six years as part of a strategy to build sales in emerging markets to counter low growth in saturated Western countries.
VW, which entered India in 2001, currently holds around 1.5% of its new car market.
The start of Polo's production in India "marks a milestone in our journey together into a successful future for the Volkswagen Group in India", Jochem Heizmann, a member of the company's management board, said in a statement.
The Pune plant, which has the capacity to produce 110,000 cars annually, is a key plank in Volkswagen's India strategy.
The firm has invested 850 million dollars in the plant, its biggest investment so far in India.
The Indian price for the Polo has not yet been announced.
But the Polo is seen as a vital model for Volkswagen to penetrate the market in India where small cars make up 80% of annual car sales.
It already sells Passat, Jetta, Phaeton and Toureg models in India.