CHICAGO — Navistar has signed a joint venture agreement with Mahindra & Mahindra Ltd. of India to produce diesel engines for medium and heavy commercial trucks and buses in that country.

The joint venture, to be named Mahindra International Engines Ltd. (MIEL), will be 51 percent owned by Mahindra and 49 percent owned by Warrenville, Ill.-based Navistar, which is the parent company of International Truck & Engine. The combined investment of the two companies will be $90 million over the next five years.

This marks the second such joint venture with M&M, India, a leading automotive manufacturer, that makes light, medium and heavy commercial vehicles for India and export markets.

The new company’s advanced diesel engines will power the full line of trucks and buses produced by the preceding joint venture, beginning in 2009. Engine components will be sourced locally, going up to 85 percent within two years, due to the strong availability of quality parts and materials from Indian suppliers.

“This is another step in our global growth strategy to leverage our technologies, great products and manufacturing expertise worldwide to create scale and achieve a competitive cost structure,” said Daniel C. Ustian, Navistar chairman, president CEO.

The first production engine will be a 7.2-liter, in-line design that has been successful in commercial truck and bus applications in South America, and Mexico, said Waldey Sanchez, president and CEO of MWM-International.

Engine models, certified to Euro III and Euro IV emissions standards, will be optimized for the Indian markets and for export to other global markets under this joint venture.