The Prime Minister’s Office (PMO) has asked the Bureau of Energy Efficiency (BEE) to restart consultations with the auto industry on the proposed Corporate Average Fuel Efficiency (CAFE-III) norms, amid sharp divisions across key issues.
This comes as the industry remains split on issues ranging from small car relaxations to SUV makers flagging stricter emission targets, arguing that infrastructure gaps and high costs are slowing EV penetration and could expose them to penalties. Differences have also emerged over the extent of super-credit incentives for battery electric vehicles (BEVs), hybrids and flex-fuel vehicles (FFVs), among other issues.
The directions were issued to the Power Ministry’s body, the BEE, on Wednesday during a high-level meeting at the PMO. The PMO called for a more robust and balanced proposal aligned with global emission standards, while ensuring that no vehicle segment is disproportionately penalised. The move signals a reset of the CAFE-III policy process, with fresh stakeholder consultations expected in the coming weeks.
“BEE and the Ministry of Power will have to conduct fresh consultations to address sharply divided industry views on key issues. The discussions are expected soon, with the revised proposal to be submitted to the PMO shortly,” a source aware of the development told FE.
Great Divide
The current draft of the norms has triggered sharp disagreements within the industry. On one side, Maruti Suzuki has sought a “flattening” of emission targets for small cars beyond a certain weight threshold, arguing that further tightening could disproportionately impact entry-level vehicles. It has also urged the government to retain the 3 g/km relaxation for small cars introduced in September 2025.
However, companies such as Tata Motors and Mahindra & Mahindra opposed the proposal, contending that such relaxations would skew the regulatory framework in favour of a single dominant player. They also argued that smaller vehicles raise safety concerns and should not receive preferential treatment.
Meanwhile, SUV manufacturers have flagged that emission reduction targets for heavier vehicles are too steep. Meeting these norms would require a sharp increase in EV sales, something they argue may not be feasible in the near term given the early stage of India’s EV ecosystem, limited charging infrastructure, and the price gap between electric and internal combustion engine vehicles. They have also sought a relaxation of around 6 g/km in their CO₂ emission targets.
Mahindra & Mahindra has estimated that CAFE-III compliance could result in annual penalties ranging from ₹2,000 crore to ₹5,000 crore under the current framework.
Technology Neutrality
Another major fault line is the treatment of different fuel technologies under the CAFE framework. Japanese automakers, which are global leaders in hybrid technology, have pushed for higher credits for hybrids. In contrast, domestic manufacturers have argued that incentives should be focused on zero tailpipe emission vehicles such as BEVs.
They warn that extending strong incentives to hybrids could dilute investments in full electrification and slow the country’s EV transition.
The industry lobby body, Society of Indian Automobile Manufacturers, was also pushing for increasing the super credit for battery electric vehicles (BEVs) from 3 to 4 and classifying EVs as having zero tailpipe emissions under the framework. Currently, a super credit of 3 means each EV sale is counted as three vehicles in fleet emission calculations. Reclassifying EVs as zero-emission would reduce their assigned emissions from 32.34 g/km in the current draft to none.
However, experts have flagged that with a super credit of 3, EV sales may remain slow, as OEMs could meet emission targets by selling only a few EVs, since one EV is counted thrice with lower emissions. The renewed consultation process is expected to focus on balancing environmental goals with industry realities, while ensuring a fair and technology-neutral regulatory regime, a source aware of the development said.
