India Proposes Stricter CAFE-III Fuel Efficiency Norms for Passenger Vehicles

The Ministry of Power released the draft Corporate Average Fuel Economy 2027 Norms (CAFE-III) on July 16, 2026, to tighten fuel efficiency and carbon dioxide emission standards for M1 category passenger vehicles. The proposed regulations will apply to vehicles manufactured or imported for sale in India from April 1, 2027, through 2031-32, replacing the CAFE-II framework.

Fleet-average fuel consumption targets will progressively tighten from 3.996 litres per 100 km (94.76 gCO₂/km) in 2027-28 to 3.3273 litres per 100 km (78.90 gCO₂/km) by 2031-32. The framework introduces Carbon Neutrality Factors (CNFs) to reduce declared tailpipe emissions for vehicles using ethanol, biofuels, and compressed biogas. To encourage electrification, the draft includes "super credits" for electric vehicles and strong hybrids, though a later update reduced the hybrid multiplier from 2.0x to 1.6x.

Compliance will be assessed in two blocks—an initial three-year period followed by a two-year period—overseen by the Bureau of Energy Efficiency. Manufacturers failing to meet targets can purchase compliance credits at prices ranging from ₹2,500 to ₹4,500 per gram of CO2/km. While the Society of Indian Automobile Manufacturers described the guidelines as balanced, a dispute emerged between manufacturers; Maruti Suzuki defended size-based differentiation for small cars, while Tata Motors opposed such concessions.

Nomura noted that while the policy accelerates electrification, it may disadvantage smaller manufacturers lacking robust electric vehicle pipelines. The government is accepting stakeholder feedback until August 6, 2026.