According to the company, the development will translate into further increase in the local content in its products from the plant.
"With this, we take a significant leap towards enhancing our localisation in India," said Mahesh Kodumudi, group chief representative, Volkswagen Group India and president and managing director, Volkswagen India.
The company said that assembly of the new 1.5-litre TDI diesel engine is scheduled to commence at the end of 2014.
The automobile manufacturer has invested 30 million euro (Rs.240 crore) in this first step of engine assembly and production of parts and components at suppliers in India.
The company said it has entered India with a long term strategy and a strong focus on the domestic market.
"Step by step, the company is increasing the level of localisation of the models produced at the Pune plant. Therefore, Volkswagen India has invested in a new engine assembly line," the company said.
The engine to be produced in India will be the new 1.5-litre TDI diesel engine that has been developed for the Indian market and recently unveiled at the launch of the new Volkswagen Polo.
The new engine assembly line will be integrated into the existing structure of the Volkswagen plant. The new line can assemble over 98,000 engines annually in a three-shift-system at full capacity. The locally assembled engine will be used in the recently launched new Polo and the Polo GT TDI.
Volkswagen's Pune Plant, which was started with an initial investment of 580 million euro and an additional investment of 100 million euro, is the single largest German investment in India so far.
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