CAFE-III rules: Lighter cars get more headroom as govt tightens fuel-efficiency targets for automakers

The government has notified the third phase of Corporate Average Fuel Economy (CAFE-III) norms for passenger vehicles, setting relatively softer efficiency targets for lighter cars while requiring greater improvements from heavier vehicles.

The norms, notified by the Ministry of Power, will apply from 1 April 2027 to 31 March 2032 and cover new passenger vehicles manufactured or imported for sale in India.

Instead of retaining a separate concession for small cars, the final framework flattens the weight-based target curve. This gives lighter vehicle fleets relatively more headroom while making the targets more demanding for heavier fleets.

The September 2025 draft had proposed a 3 gram per kilometre deduction in declared CO2 emissions for petrol cars weighing up to 909 kg, with engine capacity of up to 1,200 cc and length of less than four metres. That separate carve-out has been dropped in the final rules.

The reference weight has been set at 1,229 kg. Under the revised framework, the fleet-average fuel-consumption benchmark will progressively tighten from 3.996 litres per 100 km in 2027-28 to 3.3273 litres per 100 km in 2031-32 — an improvement of about 16.7 per cent over the five-year period.

The framework provides several routes for manufacturers to meet their obligations, including credits for electric vehicles, hybrids, flex-fuel vehicles, alternative fuels and approved fuel-saving technologies.

Battery electric vehicles, range-extended electric vehicles, plug-in hybrids, strong hybrids and flex-fuel vehicles will receive volume-based derogation factors, or “super credits”, in fleet-average calculations. BEVs will receive a threefold factor under the final framework.

The rules also recognise the contribution of renewable and low-carbon fuels, including ethanol-blended petrol, biofuels and compressed biogas, through a Carbon Neutrality Factor.

The list of recognised fuel-conservation technologies has been expanded from four to 12, giving manufacturers additional options to improve fleet-level performance.

Manufacturers can also use credit mechanisms to meet their obligations. Those exceeding their targets can generate credits, while manufacturers facing a compliance gap can use eligible carry-forward provisions, trade credits with other manufacturers or purchase credits through the Bureau of Energy Efficiency's buyout mechanism.

The new framework follows more than two years of consultation and debate among automakers over how different vehicle categories should be treated. Maruti Suzuki had sought greater consideration for smaller cars, while some other manufacturers had opposed a separate small-car concession.

Manufacturers selling fewer than 1,000 vehicles annually will remain exempt from fleet-average obligations.