The new plant, set up with 580 million euros (767 million dollars) of investment near Pune, southeast of Mumbai, will begin building the Skoda Fabia compact car in May and should eventually roll out 110,000 vehicles per year.
An Indian version of the VW Polo hatchback will be added in 2010.
"India is one of the fastest developing car markets in the world. We will fight in this market," VW board member Jochem Heizmann told reporters at the site.
"Over the long term we expect to get an eight to 10 percent market share," he added, declining to comment on current overall sales figures for this year but vowing to "do better" in the latter half of 2009.
Skoda Autos board chairman Reinhard Jung also did not go into details about sales, saying only: "The top end car market has been shrinking in India. We hope that we can match last year's (overall) growth."
All cars produced at the 2.3-million-square-metre (575 acre) plant -- VW's most modern and which should employ 2,500 people -- will be destined for the Indian market.
Officials said that despite the global economic crisis, India's automobile market has "huge potential going ahead."
"India's automobile market will grow each year from the current 1.2 million vehicles to over two million vehicles by 2014," Heizmann said.
"Thanks to the local production of Volkswagen and Skoda models in Pune, we will benefit even more from enormous growth on the Indian automobile market in future," he said at the opening ceremony.
The new VW Beetle is scheduled to make its debut in India by the end of next year.
Like its rivals, VW has been hit by a sharp slump in global automobile markets, but says it has fared better than competitors, in part owing to its increasing presence in emerging markets.
The German auto giant sold nearly 19,000 vehicles in India by the end of December 2008 -- 47 percent up on the same period 12 months earlier.
Worldwide, VW made 6.34 million vehicles. Of those, two-thirds -- or 4.2 million -- were built outside Germany.
Source: AFP South Asian Edition