India Notifies CAFE III Fuel Efficiency Norms for Passenger Vehicles

The Government of India has notified the final Corporate Average Fuel Economy (CAFE) III norms for M1 category passenger vehicles, effective from April 1, 2027, to March 31, 2032. The regulations mandate a progressive tightening of fuel-consumption benchmarks, reducing the limit from 3.996 litres/100 km in 2027-28 to 3.3273 litres/100 km by 2031-32, representing an approximate 16.7 percent improvement in efficiency.

To facilitate compliance, the framework introduces a super-credit system that grants a 3x volume multiplier for battery and range-extended electric vehicles, with lower multipliers for hybrids and flex-fuel vehicles. Carbon-neutrality factors are applied to ethanol, CNG, and diesel blends, and credits are available for 12 specific efficiency technologies. A new credit-debit mechanism allows manufacturers to trade credits or purchase them from the Bureau of Energy Efficiency at prices ranging from ₹2,500 to ₹4,500 per g CO2/km. Manufacturers with annual sales under 1,000 vehicles are exempt.

While a proposed separate concession for small cars was removed, the government modified the weight formula to provide relative relief for lighter fleets, benefiting manufacturers such as Maruti Suzuki, Renault, and Nissan. The norms also require CO2 performance reporting under the Worldwide Harmonized Light Vehicles Test Procedure (WLTP) alongside the Modified Indian Driving Cycle (MIDC).

Industry leaders from the automotive and biofuel sectors welcomed the roadmap, noting it provides predictability for long-term investment. However, analysts suggest that meeting these targets will require significant capital investment and strategic product planning.