Peugeot has signed a ‘state support agreement’ with Gujarat for a EUR650m, 170,000-unit vehicle manufacturing factory on a 600 acre site in the rapidly developing Sanand automotive cluster in western India that is also home to a Tata Nano plant.

The plant will have body paint and assembly shops plus an engine and gearbox manufacturing unit and create up to 5,000 new jobs plus additional posts in the supply chain. The first Peugeot car from the plant is expected in 2014. Further expansion has been allowed for.

PSA Peugeot Citroen chairman Philippe Varin said: “We view India as one of the most important and dynamic markets in the world with forecasts of it becoming the third largest automotive market by 2020. Gujarat offers a proactive business friendly environment, excellent infrastructure and is geographically well-positioned to cater to passenger car markets across India.W

Peugeot also said it would create an automotive skills development institute (ASDI) in partnership with the state government.

“This initiative reinforces Peugeot’s commitment to deliver a globally consistent level of high quality production, products and services to its customers and will contribute to the development of highly skilled automotive manpower in the region,” the automaker said.

Indian-built models would be adapted to Indian market needs and tastes, the automaker said, without elaborating. Based on other automakers’ products, this usually means strengthened suspension and higher ride heights to cope with the country’s poor roads and powerful air conditioning.

Peugeot said it would have a stand at the Delhi Auto Expo in January 2012.

The automaker previously had a manufacturing tie-up with Indian automaker Premier Automobiles but this was unsuccessful and ended in 2001 after only a few thousand 309 models had been assembled.