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Single cylinder and two cylinder diesel engines are widely used as a source of power generation, three wheelers, agricultural machines and in small house-hold applications in India as well as other Asian countries. Use of high end technologies in such engines are very expensive and also becoming complex. Therefore simple mechanically controlled components are used for these engines which make them simple in operation and maintenance. In order to meet stringent emission norms, there is a need for the development of these engines. In the present work, an existing two cylinder naturally aspirated DI diesel engine is upgraded with Turbocharged & Intercooled (TCIC) version to meet the revised stringent stage-II emission limits. The two cylinder diesel engine has been upgraded with optimum selection of turbocharger, intercooler and EGR valve to control the EGR mass flow rate.