Ford Motor Co. says it plans to spend $500 million to expand its operations in India.

The investment will fund several initiatives, including the expansion of Ford’s current manufacturing facility in Chennai to begin production of a new small car within the next two years.

Also included is the construction of a fully integrated and flexible engine plant expected to begin operations in 2010.

The investment “clearly shows the confidence that the senior leadership team of Ford Motor Co. has in the extraordinary potential of the India market,” says John Parker, executive vice president-Asia/Pacific and Africa.

“This new investment considerably increases our total investment in India to more than $875 million…which will be used to execute a long-term strategic plan that we’ve developed for the future of our India business…and one that is tied to our overall global strategy.”

Ford’s plans for India already have begun and will be implemented in phases over the next three years.

The first phase, currently under way, includes the addition of a diesel-engine plant at Chennai with a capacity of 50,000 units annually. The first engines are slated to roll off the assembly line in April and will be used in the local production of the Fiesta small car and Fusion midsize sedan, Ford says.

Also part of the first phase is the development of new product programs that will expand the Chennai plant and accommodate volume output of a new small car, which is set to begin production within the next two years.

The second part of the investment plan calls for the construction of a second engine plant to be built adjacent to the current plant.

The flexible-engine facility will be capable of building both gasoline and diesel engines. Initial production will be 250,000 units annually, with the first engines coming off the line in 2010, Ford says.