The government has notified the third phase of Corporate Average Fuel Economy (CAFE-3) norms for passenger vehicles, dropping a proposed special concession for small petrol cars while changing the weight-based formula in a way that gives lighter vehicle portfolios relatively more room but makes compliance tougher for heavier fleets.
The norms, notified by the Ministry of Power on September 29, will come into force from April 1, 2027 and remain applicable until March 31, 2032.
The change is significant for automakers because CAFE targets are set at the manufacturer level, based on the weighted average weight of vehicles sold, rather than as a fixed emissions limit for every model. Under the final formula, the reference weight has been raised to 1,229 kg from 1,082 kg under CAFE-II. The formula also becomes progressively tighter through the five-year period.
The final framework settles a contentious debate over small cars. A September 2025 draft had proposed a 3 grams of CO₂ per km concession for petrol cars weighing up to 909 kg. Maruti Suzuki India, the country’s largest carmaker and a major seller of small cars, had sought the relief, while other manufacturers had opposed a separate carve-out.
The government has not retained that concession. Instead, the revised formula changes the slope of the weight-based curve. This means lighter cars get more breathing room than under the earlier formula, while the benefit reduces as vehicle weight rises. For automakers, the significance is that the CAFE burden will increasingly depend on the composition of their entire portfolio rather than simply the efficiency of individual models.
This creates different implications for carmakers. Maruti Suzuki, with a large volume of small and compact cars, benefits from the revised treatment of lighter vehicles even though it did not get the separate small-car concession it had sought. Its challenge will be to offset its large petrol fleet through CNG, hybrids, EVs and efficiency technologies as the targets tighten. Maruti’s FY26 portfolio still had substantial mini and compact-car production, although utility vehicles are becoming an increasingly important part of its mix.
Tata Motors and Mahindra & Mahindra, on the other hand, have more SUV-heavy portfolios and therefore face greater pressure from the tougher treatment of heavier vehicles. But both have an important counterweight: EVs.
That is because the new rules give battery electric and range-extended electric vehicles a 3x volume factor, or super credit, in CAFE calculations. Plug-in hybrids and flex-fuel strong hybrids get a 2.5x factor, while strong hybrids get 1.6x.
The super-credit structure is less generous than the June 2024 proposal, which had envisaged a four-times factor for BEVs. The final framework has also widened the technology route for conventional vehicles. Twelve fuel-saving technologies, including start-stop systems, regenerative braking, efficient alternators and high-efficiency air-conditioning, can each provide a 1 g CO₂/km benefit, subject to a 9 g/km overall cap.
Industry welcomed the norms. Society of Indian Automobile Manufacturers (Siam) said that CAFE III provides a predictable five-year roadmap with progressively tighter targets and a market-based compliance mechanism. It said the framework would reduce fuel consumption while allowing automakers to pursue multiple clean-technology pathways, and provide greater certainty for investments and innovation.
Velusamy R, president, automotive business, M&M, called the framework a pragmatic balance between environmental requirements and what is achievable for industry.
Former NITI Aayog CEO Amitabh Kant, however, called CAFE-3 a huge missed opportunity, stating that EVs should be the destination rather than one option among several.
Manufacturers will also have a compliance safety valve through a credit-debit passbook. Those outperforming their targets can earn and trade credits, while companies with deficits can buy credits from the Bureau of Energy Efficiency. The buyout price rises from Rs 2,500 per gram of CO₂/km in FY28 to Rs 4,500 in FY32.
