Hyundai is close to finalising plans for a diesel engine plant in India where demand for the motors in small and compact cars is growing.

The company, currently number two in sales behind Maruti Suzuki, has been considering a diesel plant for years as prices for the fuel are around 40% cheaper than petrol in India.

The move has been slowed by the Indian government’s move towards hiking taxes on diesel-powered automobiles. However, the government announced this month that it would not impose higher taxes.

The carmaker is expected to announce plans within two weeks. Arvind Saxena, director of marketing and sales at Hyundai Motor India told the Wall Street Journal that the company wants to sell 410,000 cars in India this year, up 10% from 2011.

Hyundai currently manufactures petrol engines in Chennai with annual output of 600,000 units. It also assembles the Eon, Santro, i10 and i20, Accent , Verna and the Sonata in India. It sold 374,000 units in India last year with the remainder exported.

Maruti Suzuki announced last year it plans to spend US$330m constructing a diesel engine plant as it expects sales of these to jump 10%.