Vendor sources have revealed that Tata Motors' Nano small car will be available with a diesel engine by August or September 2011.

The diesel Nano could be crucial to the turnaround of the Nano brand, which has taken a beating in the recent months due to poor sales, price increase and some safety concerns.

"The diesel engine will be in the 600-700 cc range like the petrol version and could be priced at a slight premium over the current variants," said the vendor source. Component makers expect the diesel Nano to sport a price tag between Rs. 180,000 (US$ 4,000) - Rs. 220,000 (US$ 4,900). Tata Motors spokespersons refused to comment.

The diesel Nano will be the smallest and cheapest diesel car in the market and sport a sub-1000 cc engine, but with output and performance 20% - 30% better than is usual for that engine size, sources said. Honeywell has developed the world's smallest turbo systems for Nano, while Bosch will fit the smallest common rail direct injection (CRDi) system. The other partners in the project includes AVL, FEV and Ricardo.

The diesel Nano, which was to have debuted immediately after the petrol versions, got delayed on account of moving the car's mother plant from Singur to Sanand in Gujarat.

After Nano sales dwindled to just over 500 units in November 2010, Tata Motors announced a host of marketing incentives. From last week, the car is also available in all the 874 Tata Motors outlets across the country. It was earlier available in only 12 states. The company's decision to offer longer warranties at less than Rs. 100 (US$ 2.2) per month maintenance offers and easy financing schemes helped increase sales to nearly 6,000 units in December, a near tenfold rise from the month before.

The demand for diesel vehicles has been robust with diesel versions of the Suzuki Swift and Dzire and Ford Figo on long wait lists. Nearly every carmaker is now launching diesel models and even Honda, traditionally a petrol player, is developing a small diesel engine which it will introduce in the Indian market. Currently there are no diesel models in the A (M800, Nano) and A+ (Alto) segments. With the diesel Nano that gap will be plugged.