Eventually, Volvo wants to start local assembly of all models based on the SPA (Scalable Product Architecture) platform.
It will work together with Volvo Group India - the truck, bus, construction equipment and Penta engines manufacturer - to set up its assembly operations in India, the company added.
Financial details of the deal were not disclosed.
Swedish luxury carmaker Volvo Cars on Thursday said the company would rollout its first India-assembled vehicle by the end of the year. The XC 90, a premium SUV model, will be the first model to be assembled locally.
Volvo now has a market share of close to 5 per cent in the luxury segment in India, thanks to the 32 per cent sales growth in the past two years. Volvo Cars in India have had a robust 32% growth in sales volumes in the past 2 years and the 2017 trend is as per its plan to achieve 2000 cars, which will give the company a growth of 25% year-on-year.
Tom von Bonsdorff, Volvo Auto India managing director called the announcement "a sign of the company's strong commitment in India".
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"I am pleased that as of this year we will be able to start selling Volvos that are Made in India", said Håkan Samuelsson, president and chief executive of Volvo Cars.
Volvo's decision to begin local assembly operations is in line with the government's make in India programme and will help reduce vehicle prices, thereby giving a fillip to domestic sales.
Mumbai: Swedish luxury vehicle company Volvo Auto India Pvt.
While the Indian premium market is still in the teen stage, industry experts expect a rapid growth by 2020.
Volvo now sells nine luxury models in India, including sports sedan Volvo S60, performance sedan Volvo S60 Polestar, premium sedan Volvo S60 Cross Country and luxury hatchback Volvo V40. The record sales and operating profit cleared the way for Volvo Car Group to continue investing in its global transformation plan.
While sharing the Volvo name, Volvo Cars has not actually been part of the Volvo Group since 1999, when it was initially taken over by USA giant Ford and subsequently acquired by China's Geely Group in 2010.