New Delhi: The government has notified tighter fuel-efficiency CAFE-III norms for passenger vehicles, targeting a 16.7 per cent improvement in fleet-average fuel consumption over five years, while giving automakers greater flexibility to use electric vehicles, hybrids, alternative fuels and fuel-saving technologies to meet the targets.
The new Corporate Average Fuel Economy (CAFE) norms, notified by the Ministry of Power, will come into effect from April 1, 2027 and remain in force through March 31, 2032. The benchmark for average fuel consumption will tighten progressively from 3.996 litres per 100 km in 2027-28 to 3.327 litres per 100 km in 2031-32, according to the notification and an official statement.
The CAFE-III framework replaces the existing CAFE regime and is designed to drive year-on-year improvements in fleet efficiency while giving manufacturers multiple technology and compliance pathways.
The new target curve has also been made more weight-sensitive, with the reference vehicle weight raised to 1,229 kg from 1,082 kg under the existing norms. The government said this would mean relatively softer targets for lighter vehicles and greater efficiency requirements for heavier ones.
Electric and hybrid vehicles will get additional weight in fleet-average calculations. Battery electric and range-extended electric vehicles will get a 3.0 volume multiplier, while plug-in hybrids and strong hybrids running on flex-fuel ethanol will get 2.5, strong hybrids 1.6 and flex-fuel vehicles 1.1.
The automobile industry broadly welcomed the framework, saying the five-year roadmap and market-based compliance mechanisms provide greater regulatory certainty while allowing manufacturers to pursue multiple technology pathways.
The norms also expand the list of recognised fuel-saving technologies from four to 12, allowing manufacturers to claim a reduction of 1 gram of CO2 per kilometre for each eligible technology, subject to a maximum of 9 g/km.
Eligible technologies include start-stop systems, tyre-pressure monitoring, regenerative braking, efficient alternators, micro-hybrid systems, exterior LED lighting, advanced glazing, electric water pumps, solar-reflective paint and high-efficiency air-conditioning systems.
The framework provides further compliance recognition for alternative fuels through a Carbon Neutrality Factor. E20 and higher ethanol-blended petrol vehicles, including specified hybrids, will get an 8 per cent factor on tailpipe CO2, while flex-fuel ethanol vehicles will receive 22.3 per cent.
CNG vehicles will get a 5 per cent factor or the notified CBG-blending percentage, whichever is higher.
Manufacturers who outperform their prescribed targets will generate compliance credits, while those falling short will accumulate debits.
Credits can be carried forward within the relevant compliance block and traded or exchanged between manufacturers. Automakers can also buy credits from the Bureau of Energy Efficiency to offset a debit balance.
The price of credits bought from the Bureau will rise from Rs 2,500 per g CO2/km in 2027-28 to Rs 4,500 in 2031-32, creating a financial cost for manufacturers that fail to meet their fleet-average targets.
The first compliance block will run for three years from fiscal 2027-28, followed by a two-year block beginning in fiscal 2030-31. Any credits remaining unsettled at the end of a compliance block will lapse.
The norms will require manufacturers to report vehicle performance under both Modified Indian Driving Cycle (MIDC) and the Worldwide Harmonized Light Vehicles Test Procedure (WLTP) from April 2027, supporting India’s gradual move towards globally harmonised vehicle testing.
The Ministry of Road Transport and Highways will oversee testing, certification, reporting and related methodologies, while the Bureau of Energy Efficiency will administer the credit and compliance framework.
The government said these norms were finalised following consultations with automakers, industry associations, academia and other stakeholders. The framework is intended to provide regulatory certainty while allowing manufacturers to choose different technology pathways as India sees greater electrification, alternative-fuel availability and advances in automotive technology.
The new CAFE framework seeks to lower fossil-fuel consumption in India while supporting the development of electric, hybrid, ethanol and other cleaner vehicle technologies.
Manufacturers with annual eligible production or imports of less than 1,000 vehicles will be exempt from meeting a specific fleet-average target, although they will continue to report their fuel-consumption data.
SIAM President Shenu Agarwal said the norms provide “a structured road-map with aggressive annual targets for next 5-years” and would give the industry an opportunity to work on “various technology pathways providing multiple choices to the consumers.”
Maruti Suzuki India, the country’s largest small-car maker, is likely to gain the most from the revised weight-based framework as lighter vehicles face relatively softer efficiency targets.
Maruti Suzuki’s Senior Executive Officer, Corporate Affairs, Rahul Bharti, said the framework recognises “multiple power-train technologies and fuels” and that the credit/debit mechanism is an improvement over CAFE-II.
Automakers also highlighted the recognition of electrification, hybrids and cleaner fuels. Tata Motors Passenger Vehicles MD & CEO Shailesh Chandra said the continued recognition of zero-emission technologies “reinforces the critical role of electrification” in India’s decarbonisation goals.
Mahindra & Mahindra’s President – Automotive Business, Velusamy R, called the framework “pragmatic” and said it strikes a balance between environmental requirements and what is achievable for industry.
Tarun Garg, MD & CEO, Hyundai Motor India, pointed to credit trading, pooling and flexible compliance as mechanisms that would promote investment and innovation.
Vikram Gulati, Country Head & Executive VP, Toyota Kirloskar Motor, welcomed the “multi pathway approach” recognising battery EVs, range extenders, plug-in and strong hybrids and flex-fuel vehicles.
The recognition of EVs and PHEVs, along with long-term regulatory certainty, would help accelerate adoption of advanced automotive technologies, Mercedes-Benz India CEO Santosh Iyer said.
