By Santanu Choudhury 

NEW DELHI-- General Motors Co. will invest $1 billion in India as it recalibrates its efforts in Asia's third-largest economy by shutting down one factory while increasing production in another and focusing on new models.

The Detroit auto maker will use the money to launch 10 locally produced Chevrolet vehicles in India over the next five years, said Stefan Jacoby, head of GM's international operations.

The investment is part of a broader plan, which GM announced Tuesday, to spend a total of $5 billion developing a new family of Chevrolets with China's SAIC Motor Corp. to target emerging markets including China, Brazil, Mexico and India.

"Today we draw the line and mark the beginning of a new General Motors here in India," Mr. Jacoby told a news conference in New Delhi, which was also attended by GM Chief Executive Mary Barra. "We have a lot of hard work ahead of us but I am confident [GM employees] are going to deliver."

As GM rethinks its India plans and reworks its global supply chain it will close its factory in the western state of Gujarat and increase production at its facilities in the state of Maharashtra. Once all the revamping is finished the auto company's capacity in India will have fallen by 21% to 220,000 vehicles a year.

Since he joined in 2013, Mr. Jacoby has been realigning GM's global manufacturing operations to lift profits. The company has closed plants in Australia and Indonesia and has scaled down its operations in Thailand.

The company began its operations in India in 1996 and has invested about $1 billion since then to build its two factories. Still, it has been unable to carve out a very big share of an Indian car market. The company had a 2% share of the car market in India in the year ended March, compared with 2.9% at Ford Motor Co. and the 45% of market leader Maruti Suzuki India Ltd. and the 16.2% market share of Hyundai Motor Co.

The brand has recently taken a hit as the company had to recall 269,000 vehicles in the past two years in India. Sales of GM vehicles in India declined 36% in the year through March to 51,839 vehicles, widely underperforming an Indian market which grew 3.9% to 2.6 million vehicles over the same period.

GM's decision to increase its bets on India despite its struggle to make inroads will be welcomed by the government of Prime Minister Narendra Modi, which has been trying to promote foreign investment through its "Make in India" campaign.

There are already some signs that Mr. Modi's leadership may be working. Between January and May this year, foreign direct investment into India totaled $17.3 billion, up a third compared with the same period a year earlier.

In March, Ford Motor Co. opened a new factory in western India, more than doubling its capacity in the country as part of its own billion-dollar bet on India. Much of Ford's production in India will be earmarked as exports to other emerging markets.

General Motors said that eventually about a third of its production in India will be for export.

Unlike the biggest economies of Asia--Japan and China--India has until now had limited success at becoming an export powerhouse.

Other than some commodities, jewelry, garments and outsourcing services, India has failed to match the success of the Asian economies that used exports to turbocharge economic development. Automobiles, however, are one area where it has been able to use intense global interest in its local market to attract the investment. The automobile has been one of the most popular for investment by foreign firms. It has attracted $14 billion in FDI in the last 15 years. A growing slice of that investment is being used to create export capacity.

Write to Santanu Choudhury at santanu.choudhury@wsj.com