The deal is expected to be finalised in the next "two-three months" and unlike the current arrangement where Suzuki builds Fiat Powertrain's 1.3 Multijet 16v engine under licence, these extra units will be manufactured by Fiat India Automobiles at its vastly underutilised factory at Ranjangaon.

"There has been an unprecedented rise in demand for diesel vehicles, mainly because of the pricing of the fuel. Since Fiat has spare capacity, we are evaluating buying engines from them," the Wall Street Journal reported Maruti Chairman R.C. Bhargava as telling reporters. "As much as 85 percent of sales of some models are in diesel now," he said.

According to the report Maruti is currently testing Fiat Powertrain's engines and, "if it goes through, then we should be able to finalise everything in two-three months," Bhargava told the WSJ. "Some parts are different on Fiat's Multijet engine that will need to be taken care of before we strap it on its cars," a senior Maruti executive was quoted as saying by the Economic Times. "We need to do a lot of work before going for these engines," Bhargava added. "Besides technical changes to meet our needs, we need to homologate our cars again to be launched with any Fiat engine in India."

The deal would be significant for Fiat India Automobiles (FIAL), a 50-50 joint venture between Fiat and India's Tata Motors, and one ray of good news as its sales decelerate rapidly. FIAL's factory at Ranjangaon in the Maharashtra state has the capacity to produce 250,000 engines per year but at the moment the machinery is barely moving as the joint venture flounders and in recent months the blame calling has become very public.

While Fiat struggles to make a dint in its capacity, quite the opposite is the case for Maruti and its 280,000 diesel engine capacity in India is at full stretch. It currently exports 45,000 units a year to Suzuki's factory Hungary and that is likely to be cut off to help domestic needs, which currently stand at around 120,000 units more than it can produce. "We will cut diesel engine exports to Hungary in the next six months and divert the entire supply to the domestic market," Maruti Suzuki managing executive officer for marketing and sales, Mayank Pareek, was quoted by the Economic Times as saying.

Last month FIAL sold just 1,102 cars in India, that was down by more than a half on the same month last year when it shifted 2,301 cars. Its key locally assembled models, the Grande Punto and Linea, have both seen their sales slumping despite very favourable reception from the media. For the year-to-date FIAL has sold only 6,805 cars, also down on the same seven month period last year when it shifted 8,401 cars. By comparison Maruti Suzuki has sold well over 1 million cars in India over the last year including the diesel-powered Ritz, Swift, Swift Dzire and SX4.

While Fiat has pushed Maruti to take engines built by FIAL for sometime, the Japanese carmaker has thus far resisted any interest, preferring instead to obtain licencing rights and carry out assembly itself. The FIAL built units are likely to come at a very competitive prices as the joint-venture attempts to reduce its losses. With diesel-power now proving increasingly competitive in India thanks to government fuel subsidies, buying complete engines from Fiat would allow Maruti to satisfy growing demand without making investments into a landscape that could easily change.