"If you look at the market dynamics in India there is an increase in the demand for diesel. We have been conducting a feasibility study on diesel engine manufacturing in India but are unable to convince our headquarters," TKM Deputy Manging Director (Marketing) Sandeep Singh said.
"There is no stability of diesel pricing policy and a company like us cannot keep on changing strategy...it is about going and asking for changing of plan and ask for investment in a new technology," he added.
In April, TKM is understood to have put forward a proposal to set up the plant in India after the Budget for 2012-13 spared diesel vehicles from additional taxes.
There has been demand to increase taxes of diesel passenger vehicles from different quarters to prevent usage of the subsidised fuel for "luxury". However, the automobile industry has been asking the government to deregulate diesel price in line with petrol.
When asked how long will the company take to decide on setting of the diesel engine plant, Singh said: "We cannot give a timeline...the feasibility study is still going on."
He said the company has started petrol engine production from its Bangalore plant, which has a total capacity of one lakh units annually.
The plant has been set up at an investment of Rs 500 crore. In the first year the company is looking at producing about 30,000 to 35,000 units of engines depending on market demand.
"At present 22 per cent of the total monthly sales of about 7,000 units of Etios and Liva, is petrol and the rest diesel."
Asked about launching of Toyota's luxury brand Lexus in India, Singh said: "There is an apprehension about the increase in customs duty...we are still studying the market and we hope to get a clear direction by the end of this year."
The company had earlier said it would bring the brand in India by 2013 and planned to set up exclusive Lexus showrooms to sell cars and sports utility vehicles of the brand.
Toyota Motor is also planning to launch eight new products, including Etios, in the mid-term.
"We will launch eight new products in the emerging markets and India will be a prominent one. The products will be introduced in the next 6-8 years," Toyota Motor Asia Pacific Executive Vice President Vince Socco said without disclosing details.