With an eye on India, one of the fastest growing car markets, Europe's largest carmaker Volkswagen AG is acquiring a 19.9-per cent stake in Japanese car maker Suzuki Motor Corporation, the parent company of India's largest pasenger car maker, Maruti Suzuki,  for 222.5 billion yen ($2.5 billion.

The Wolfsburg -based VW said today that it has reached a common understanding with Suzuki to establish a close long-term strategic partnership and signed a framework agreement for developing and manufacturing energy-efficient small cars in emerging markets.

Volkswagen will acquire 19.9 per cent of Hamamatsu-based Suzuki's issued shares.

In turn, Suzuki plans to invest up to half of the amount received from Volkswagen into Volkswagen shares.

Both companies said that the closing of the transaction is subject to approval from the relevant authorities and is expected in January 2010.

As demand continues to rise for smaller cars and for powertrains with higher fuel efficiency and lower CO2 output, VW and Suzuki said that they will offer a compelling solution for first time buyers of car in emerging markets and also for customers in advanced economies seeking to lower their CO2 footprint.