India's Ministry of Power has officially notified the third phase of Corporate Average Fuel Economy norms for passenger vehicles, effective from April 1, 2027, introducing a weight-sensitive approach that provides relatively softer efficiency targets for lighter cars and demands greater fuel-efficiency improvements from heavier vehicles.
Key Points
- The CAFE-III norms, effective from April 1, 2027, set softer fuel efficiency targets for lighter cars and stricter goals for heavier vehicles, benefiting manufacturers of smaller cars.
- The revised framework flattens the weight-based target line, ending a contentious debate among automakers regarding the treatment of small versus large cars.
- The norms require over 16 per cent improvement in fuel efficiency over five years, with progressive tightening of targets from 2027-28 to 2031-32.
- Manufacturers are offered multiple compliance pathways, including incentives for electric vehicles, hybrids, flex-fuel vehicles, and an expanded list of fuel-saving technologies.
- Super credits will be awarded for Battery Electric Vehicles (BEVs), Plug-in Hybrid Electric Vehicles (PHEVs), and Strong Hybrid Electric Vehicles (SHEVs) to accelerate the deployment of cleaner technologies.
The government has notified the third phase of Corporate Average Fuel Economy (CAFE) norms for passenger vehicles, setting relatively softer efficiency targets for lighter cars and requiring greater fuel-efficiency improvements from heavier vehicles.
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 than those specified under the September 2025 draft.
The Ministry of Power notified the third phase of Corporate Average Fuel Economy (CAFE-III) Norms for passenger vehicles, which will come into effect from April 1, 2027 and remain applicable up to March 31, 2032.
The new norms will apply to new passenger vehicles manufactured or imported for sale in India.
Revised Weight-Based Framework
Under the norms notified late on Tuesday, instead of an explicit small-car concession, the revised target line has been flattened to provide a more balanced, weight-sensitive approach, ending a long contentious debate between automakers over the treatment of small versus large cars.
The reference weight has been increased from 1,082 kg under existing norms to 1,229 kg under new CAFE norms, an increase of around 13.6 per cent, reflecting the evolving characteristics of the passenger vehicle fleet.
The auto industry was divided between two groups -- one pitching for some special consideration for small cars, and the other seeking benefits for EVs and bigger cars.
A section of carmakers, including Tata Motors, had earlier opposed any leniency for small cars based on weight and affordability, whereas bigger players like Maruti Suzuki India had argued that the idea behind the new norms was to make big cars improve fuel efficiency and reduce emissions.
The September 2025 draft had proposed an additional 3 gram per km deduction in declared CO2 emissions for petrol cars weighing up to 909 kg, with engine capacity not exceeding 1,200 cc and length not exceeding four metres.
The final norms drop that separate carve-out but instead flatten the weight-based target curve, giving lighter vehicles greater relief compared with the September 2025 draft.
Fuel Efficiency Improvements and Compliance Pathways
The new CAFE norms also seek over 16 per cent improvement in fuel efficiency over five years, stipulating progressive improvements in fuel economy through year-on-year tightening of targets across all five years.
The fuel-consumption benchmark is tightened from 3.996 litres/100 km in 2027-28 to 3.3273 litres/100 km in 2031-32, representing an improvement of around 16.7 per cent over the period.
The norms also provide manufacturers with multiple compliance pathways, including incentives for electric vehicles, hybrids, flex-fuel vehicles, alternative fuels and fuel-saving technologies.
The framework recognises the contribution of renewable and low-carbon fuels, including ethanol-blended petrol, biofuels and CBG, through the introduction of the Carbon Neutrality Factor (CNF).
This provides manufacturers with an additional pathway for improving their fleet-level CAFE performance, alongside vehicle efficiency improvements and electrification.
The provision supports India's broader transition towards cleaner fuels while encouraging innovation across multiple technology pathways.
The list of recognised fuel-conservation technologies has been significantly expanded from four to twelve technologies.
This provides manufacturers with greater flexibility to adopt and receive recognition for approved fuel-saving technologies.
Incentives for Cleaner Technologies
Battery Electric Vehicles (BEVs), Range-Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs) and Flex-Fuel Vehicles will receive volume derogation factors, also known as 'super credits', in fleet-average calculations.
The new norms provide an additional incentive for manufacturers to accelerate the deployment and market penetration of cleaner and advanced vehicle technologies.
To facilitate ease of compliance and provide greater operational flexibility, manufacturers may opt to meet their obligations over specified two-year/three-year compliance blocks.
Manufacturers that perform better than their prescribed targets will generate credits, which may be carried forward within the specified compliance blocks.
Manufacturers with a compliance gap may utilise eligible carry-forward provisions, enter into exchange/trade of credits with other manufacturers, or purchase credits through the buyout mechanism administered by the Bureau of Energy Efficiency.
Manufacturers with annual sales of less than 1,000 units will remain exempt from fleet-average obligations, thereby avoiding the regulatory burden for low-volume manufacturers.
