The Edinburgh India Institute will encourage a greater awareness of India in Scotland and aims to build a programme of training in major Indian languages, the University said in a statement.
It will also stage cultural events, attract high-profile speakers and encourage new research initiatives, student and staff exchanges that will deepen the many existing links between the two countries.
In addition, the University has created a visiting professorship in Contemporary Indian Studies, co-funded with the Indian Council for Cultural Relations.
Prof Sir Timothy O'Shea, Principal of the University of Edinburgh, said: "I am delighted at the launch of this new institute, which builds on the very strong relationship that the University has with India. This is reflected by the many partnerships we have with Indian businesses and institutions, as well as in our Indian students and staff, who add so much to the University."
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The launch of the Institute comes after a series of events that brought together researchers from Edinburgh with leading Indian academics, which are expected to encourage new collaborations between the University and partners across India.
Prof Roger Jeffery, India Dean at the University of Edinburgh and the Director of the new institute, said: "This institute will act as a bridge between Scotland and India. As well as aiding understanding between the two countries, it will also act as a hub to help establish new commercial, academic, educational, cultural and sporting links."
The University has a long tradition of teaching and scholarship relating to India.