India's biggest carmaker Maruti Udyog Ltd on Tuesday announced the setting up of a diesel engine plant with an investment of Rs 350 crore (Rs 3.50 billion).

The long-awaited major investment will be for the production of diesel engines with the technology from Italy's Fiat Auto and the United States-based General Motors' subsidiary, Adam Opel.

"Our decision to invest in a new facility to manufacture diesel engines underlines our parent, Suzuki Motor Corporation's, continued commitment to India," Maruti managing director Jagdish Khattar said in a statement after the meeting of the board on Tuesday.
 
"It is in keeping with Maruti's strategy of providing suitable products for diverse segments of customers.

"We are confident that by setting up an advanced facility to manufacture state-of-the-art diesel engines, we will be able to meet this demand of customers as well," he said.

The new diesel engine facility would have a capacity to manufacture 100,000 units annually. The production of the 1.3 litre diesel engine on the Common Rail Direct injection (CRDi) system will begin from 2006.

The measure has been taken to meet the growing demand for diesel engine cars in the Indian market, Khattar said.

Maruti, 54.2 per cent owned by Suzuki Motor Corporation of Japan, was in talks with a number of diesel engine makers, including the Italian automaker Fiat and Peugeot of France to manufacture diesel engines locally.

Earlier, a senior Suzuki official was quoted as saying that the Japanese automaker wanted to install Fiat diesel engines in Maruti models.

Talking to PTI early this month, Khattar said the signing of the agreement to manufacture diesel engines locally would not take much time with the company very soon inking the deal with one of the engine manufacturers it was in talks with.

"It (the agreement) should not take much time," he had said.

At present, Peugeot, part of PSA Peugeot Citron group, supplies diesel engines for Maruti's compact car Zen and mid-size sedan Esteem.

Making engines locally made sense for the company as importing diesel engines was not cost-effective.

The new diesel engines will be produced locally for which technology will come from Fiat Auto and Adam Opel. Suzuki recently entered into an agreement with the two firms for procuring a product licence.