Tata Motors, India’s largest vehicle maker, has signed a contract with Myanmar Automobile and Diesel Industries to set up a heavy truck plant in the military-ruled country once known as Burma.

The new plant will be in Magwe, nearly 480km (300 miles) from the capital Yangon and will be funded by credit for the Indian government. It is due to start production early in 2012. Capacity will be 1,000 trucks a year initially, rising to 5,000.

Myanmar, which has been ruled by the military since 1962, is under economic sanctions by the US and the EU because of its human rights record and long-running detention of pro-democracy leader Aung San Suu Kyi.

But the impact of the sanctions has been weakened as neighbours such as China, India and Thailand invest billions of dollars, particularly in its oil and gas industry.

Myanmar’s military government held talks with an Indian delegation on 1 March.