PARIS -- PSA/Peugeot-Citroen will invest 650 million euros ($929 million) to build a plant in India with capacity to produce 170,000 vehicles a year.
PSA will assemble two cars, a new compact sedan and the Peugeot 508 mid-size model, at the plant in the state of Gujarat starting in 2014.
"The compact car category corresponds closely to the needs of India's emerging middle class," PSA spokesman Pierre-Olivier Salmon said.
PSA CEO Philippe Varin is looking to add factories in India and China in an effort to reduce the automaker's dependence on the slower-growing European market.
The plant investment deal includes options for future expansion, PSA said. The carmaker will start importing the 508 to India before the new facility comes on stream, Salmon said, without giving a more precise date.
PSA suspended a project to build a plant near Hyderabad, India, 18 months ago pending the outcome of tie-up talks with Mitsubishi Motors Corp. Negotiations between the French and Japanese carmakers ended without a deal last year.