The government has notified the new Corporate Average Fuel Economy (CAFE-3) norms for passenger vehicles, with the rules set to come into effect from April 1, 2027. The new framework will remain applicable until March 31, 2032 and aims to push automobile manufacturers towards better fuel efficiency and lower carbon emissions.
The rules will apply to new passenger vehicles manufactured or imported for sale in India. Unlike an earlier draft, the final CAFE-3 framework does not provide a separate concession for small petrol cars weighing up to 909 kg. Instead, the government has revised the weight-based formula for calculating manufacturers’ fleet-level efficiency targets. The reference vehicle weight has been increased to 1,229 kg, while lighter vehicles will generally have relatively less stringent targets and heavier vehicles will face stricter efficiency requirements.
Under the new framework, fuel-consumption targets will become progressively stricter over the five-year period. The benchmark is set to decline from 3.996 litres per 100 km in 2027-28 to 3.3273 litres per 100 km in 2031-32, representing an improvement of around 16.7%. This means manufacturers will have to improve the average efficiency of their vehicle fleets over time.
The CAFE-3 norms also provide incentives for cleaner technologies. Electric vehicles, hybrid vehicles and certain alternative-fuel vehicles can receive additional compliance benefits through the super-credit mechanism. The rules also introduce a credit-debit system, allowing manufacturers that perform better than their targets to earn credits, while companies falling short can use available credits or purchase credits to meet compliance requirements.
The new norms are therefore expected to influence how automakers design and sell vehicles in India, with greater emphasis on fuel efficiency, lower emissions, electric mobility, hybrids and alternative fuels from 2027 onwards.
