CAFE-III Norms Take Effect From April 2027

The Ministry of Power has notified the new Corporate Average Fuel Economy framework for passenger vehicles manufactured or imported for sale in India.

The standards will cover the five financial years from 2027-28 through 2031-32.

CAFE regulations differ from vehicle-specific emission limits because compliance is assessed across a manufacturer's overall passenger-vehicle fleet. The mix of vehicles sold by each automaker therefore plays an important role in determining its final performance.

Under the new framework, fuel-consumption benchmarks will progressively tighten from 3.996 litres per 100 kilometres in 2027-28 to 3.3273 litres per 100 kilometres in 2031-32.

That represents an improvement of about 16.7% over the five-year regulatory period.

Final Rules Drop Separate Small-Car Concession

One of the most closely watched issues during the development of CAFE-III was whether smaller petrol cars would receive a separate compliance concession.

A September 2025 draft had proposed a benefit for petrol vehicles weighing up to 909 kg. Under that proposal, 3 grams of CO2 per kilometre would have been deducted from the emissions figure of qualifying vehicles when calculating a manufacturer's CAFE performance.

The provision became a significant point of disagreement within the automobile industry.

Maruti Suzuki, which has a substantial presence in India's small-car market, had supported regulatory recognition for lightweight vehicles. Other automakers argued against creating a separate concession for the segment.

The final notification does not retain that dedicated carve-out.

Government Changes Weight-Based Formula Instead

Rather than introducing a separate category for small cars, the government has modified the broader mathematical formula used to establish fleet targets.

The reference weight under the final framework has been set at 1,229 kg. The revised target line has also been flattened.

As a result, manufacturers with relatively lighter fleets receive more headroom than they would have received under the earlier proposed formula, while companies with heavier vehicle portfolios face relatively more demanding efficiency requirements.

The approach effectively incorporates vehicle weight into the overall compliance framework instead of providing a specific benefit exclusively to cars below the proposed 909-kg threshold.

This distinction is important because the rules can affect manufacturers differently depending on the composition of their sales.

Heavier Vehicles Face Greater Efficiency Requirements

The revised CAFE formula means manufacturers selling larger and heavier vehicles will need to make stronger improvements in fleet efficiency.

India's passenger-vehicle market has increasingly shifted toward sport utility vehicles and larger models, making vehicle weight an important factor in future compliance strategies.

Automakers can respond through several pathways, including more efficient internal-combustion engines, hybridisation, electric vehicles, alternative fuels, lightweight engineering and other energy-saving technologies.

The framework therefore does not prescribe a single powertrain strategy for manufacturers.

Instead, companies can determine the combination of technologies and vehicle sales that best enables them to meet their fleet targets.

Electric Vehicles Retain Strong Super-Credit Advantage

Electric vehicles remain particularly valuable for CAFE compliance.

Under the final rules, a battery electric vehicle receives a volume derogation factor of 3. This effectively allows one qualifying BEV to be counted as three vehicles when calculating a manufacturer's fleet performance.

Range-extended electric vehicles also receive a factor of 3.

Plug-in hybrid electric vehicles and strong hybrids operating on flex-fuel ethanol receive a factor of 2.5, while strong hybrid electric vehicles receive a factor of 1.6.

Flex-fuel ethanol vehicles receive a factor of 1.1.

These provisions can make cleaner powertrains strategically important for manufacturers seeking to lower their calculated fleet fuel consumption.

Alternative Fuels Also Receive Recognition

The final framework includes carbon-neutrality factors for several alternative fuels.

Vehicles operating on E20 or higher ethanol-blended petrol, including eligible hybrid vehicles, receive recognition under the framework.

Flex-fuel ethanol vehicles receive a larger carbon-neutrality factor, while CNG vehicles can also receive benefits based on the applicable provisions for compressed biogas blending.

Diesel vehicles can receive recognition linked to eligible biofuel blending.

The structure broadens the available compliance pathways beyond battery-electric vehicles and gives automakers incentives to develop multiple lower-carbon technologies.

Fuel-Saving Technologies Can Generate Additional Benefits

CAFE-III also recognises specific technologies that improve vehicle efficiency but may not be fully reflected in conventional testing.

Manufacturers can claim a reduction of 1 gram of CO2 per kilometre for each eligible fuel-saving technology deployed, subject to an overall ceiling of 9 grams per kilometre.

Eligible technologies include systems such as start-stop functionality, tyre-pressure monitoring, regenerative braking, advanced transmissions, efficient alternators, motor-generators, LED exterior lighting, advanced glazing and high-efficiency air-conditioning systems.

The provision gives automakers another route to improve their regulatory performance through engineering changes across conventional as well as electrified vehicles.

Credit Trading Adds Flexibility for Automakers

The final CAFE-III framework introduces a credit-and-debit mechanism to provide manufacturers with additional flexibility.

Automakers performing better than their prescribed fleet targets can generate credits, while companies falling short accumulate debits.

Credits can be carried forward within specified compliance periods and can also be traded between manufacturers.

The first compliance block covers FY28 through FY30, while the second covers FY31 and FY32.

Manufacturers that continue to have a compliance deficit can purchase credits through a buyout mechanism administered by the Bureau of Energy Efficiency.

The buyout price begins at ₹2,500 per gram of CO2 per kilometre in FY28 and increases by ₹500 annually, reaching ₹4,500 in FY32.

MIDC and WLTP Reporting Strengthens Measurement Framework

Manufacturers will also face expanded reporting requirements from April 2027.

Vehicle performance will have to be reported under both the Modified Indian Driving Cycle and the Worldwide Harmonized Light Vehicles Test Procedure.

Using the two measurement systems will provide regulators with additional information about vehicle fuel consumption and emissions performance as testing standards evolve.

The reporting requirements form part of the broader effort to strengthen monitoring and accountability under India's next generation of fleet-efficiency regulation.

CAFE-III Could Reshape Automakers' Product Strategies

The new standards are likely to become an important factor in product and powertrain planning across India's passenger-vehicle industry.

Companies with large portfolios of heavier petrol and diesel vehicles may need greater efficiency improvements or increased sales of electric, hybrid and alternative-fuel vehicles to remain within their fleet targets.

Manufacturers with lighter vehicle portfolios receive relatively more headroom under the revised weight-based formula, although they must still comply with progressively tighter standards.

The availability of super credits, carbon-neutrality factors, technology benefits and tradable credits means manufacturers can pursue different strategies rather than relying on a single technology.

Conclusion

India's final CAFE-III framework establishes a five-year path toward tighter passenger-vehicle fuel-efficiency standards from April 1, 2027 to March 31, 2032.

The government has dropped the proposed standalone concession for petrol cars weighing up to 909 kg and instead revised the broader weight-based formula, providing relatively softer targets for lighter fleets and stronger efficiency requirements for heavier ones.

With electric vehicles receiving significant super-credit benefits and hybrids, alternative fuels and efficiency technologies also recognised, CAFE-III is set to influence vehicle development, powertrain investment and product portfolios across India's automobile industry through the end of the decade.