India's largest carmaker, Maruti Suzuki is planning to increase the production of its diesel vehicles in order to cater to the growing demand for diesel cars in the country.

The company will invest Rs 1,700 crore to set up a new diesel engine plant within its Gurgaon facility in Haryana. The new plant is set to have an annual production capacity of three lakh units.

The sale of diesel vehicles has been rising in the country because the government heavily subsidizes the fuel and it is cheaper to run diesel vehicles than cars with petrol engines.

Because of lower diesel costs, the demand for the company's diesel vehicles is high and it usually carries a waiting list of six months.

According to estimates, the oil retailers in India will suffer a loss of about Rs. 82,000 crore in 2011-12 from selling diesel. The petroleum ministry is also looking into ways for reducing the use of subsidized fuel in cars and has recommended higher duty on the purchase of diesel cars to the finance ministry.

Maruti purchases its diesel engines from Suzuki Powertrain India and recently from Fiat India.