Honda will build a new diesel engine plant in India's northern state of Rajasthan, a top company executive said Wednesday.

The plant will be located at Tapukara in the state this fiscal year and a new Brio-based entry sedan, due for launch early next financial year, will be the first model to take advantage of it, sources said.

The new sedan will compete with market leader Maruti Swift Dzire and others such as Toyota Etios and Mahindra Verito. The Japanese carmaker will also launch a utility vehicle, most likely a compact SUV, also based on the Brio compact car platform.

The new diesel engine is likely to be of 1.5-litre capacity and will subsequently be introduced in the Brio hatchback, Jazz and City models. It will also be used in the compact utility vehicle that will come in later.

The move will help revive flagging sales in the 2 million unit- plus Indian car market. Honda will join Hyundai, Volkswagen and Toyota Kirloskar, all of whom are planning local diesel engine plants.

Honda Motor Global CEO Takanobu Ito recently confirmed the developments in a speech in Tokyo.

"In order to compete and win in highly-competitive low-price markets and fulfill the diverse needs of customers, Honda will add sedan-type and utility-type models utilizing the platform of the Brio," he said.

Non-availability of both a diesel engine and models for the mass car segment have led to a 4 percent (58,951 units) and 8.5 percent (54,427 units) drop in sales for Honda in 2010-11 and 2011- 12 respectively.

However, sales went up 54 percent to 29,932 units between April and August this year with the launch of the Brio compact and a price drop for the Jazz and City models.

"An all-new diesel engine will be adopted sequentially to new models starting from FY2014. The cost competitiveness of the engine will be enhanced through local sourcing and production," Ito said.