Government Floats Draft CAFE III Norms for 2027–2032: Sharper Fuel Efficiency Targets Ahead

The government of India has published a draft version of the next phase of its Corporate Average Fuel Efficiency (CAFE) standards, proposing tougher fuel consumption rules for passenger cars sold between 2027 and 2032. Known as CAFE 2027, the draft norms represent the third stage of India’s fleet-level fuel economy roadmap and are designed to align the auto sector with broader climate and energy goals.

Industry stakeholders have been asked to submit their comments and feedback by October 16, 2025, after which the government will finalise the notification.

Raising the Bar on Efficiency

At the heart of the proposal is a formula-based target for each manufacturer, linking average fuel consumption to the weighted mass of its fleet. Put simply, heavier fleets get a slightly higher fuel consumption allowance, but the baseline tightens every year from 2027–28 through 2031–32. Automakers will need to keep their fleet-wide averages at or below these thresholds, expressed in petrol-equivalent litres per 100 km.

While small efficiency gains in conventional petrol cars are still possible, regulators acknowledge the diminishing returns. The draft explicitly notes that compact petrol models with limited scope for further improvements will be allowed a small additional CO₂ reduction benefit. This reflects a pragmatic approach: real efficiency leaps will have to come from electrification and alternative fuels.

Incentives for Green Tech

The framework leans heavily on “super credits” and carbon neutrality factors to nudge the industry toward cleaner options. Each electric car sold will count as three vehicles for compliance purposes, while plug-in hybrids and flex-fuel hybrids will enjoy multipliers of 2.0 to 2.5. Conventional flex-fuel ethanol vehicles will get a 1.5x credit.

On top of that, CO₂ emissions will be “discounted” for certain fuels:

• 8% for petrol cars running on E20–E30 blends,
• 22.3% for flex-fuel ethanol and strong hybrids, and
• 5% or higher for CNG cars, depending on biogas blending levels.

These measures are designed to encourage carmakers to bring more hybrids, EVs, and ethanol-compatible engines into their line-ups — areas where India still lags global peers.

Shift to Global Test Standards

Another major shift is the eventual move from India’s Modified Indian Driving Cycle (MIDC) to the Worldwide Harmonized Light Vehicles Test Procedure (WLTP), a globally recognised standard that better reflects real-world driving. Manufacturers will need to declare performance under both cycles from 2026, with WLTP becoming central once formally adopted by the Ministry of Road Transport and Highways (MoRTH).

Compliance, Pooling and Penalties

The compliance burden will be overseen jointly by MoRTH and the Bureau of Energy Efficiency (BEE) under the Energy Conservation Act. To ease the transition, the rules allow up to three automakers to form a compliance pool, treating them as a single entity. This could open the door to interesting alliances between companies with differing technology portfolios.

But the draft also makes clear that compliance is not optional. Any shortfall against the fleet-average target will invite penalties under the Energy Conservation (Compliance Enforcement) Rules, 2025, framed under the Energy Conservation Act, 2001. While the exact fine structure has not been detailed in the draft, past CAFE regimes have linked penalties to the extent of CO₂ exceedance per car sold — making non-compliance an expensive proposition. For large-volume manufacturers, missing the target by even a small margin could translate into hundreds of crores in penalties.

What It Means for the Industry

The draft CAFE III norms will likely accelerate the shift away from pure petrol-diesel lineups. For market leaders like Maruti Suzuki, which still relies heavily on small petrol cars, compliance could hinge on scaling up flex-fuel, hybrid and eventually EV offerings. Hyundai, Kia, Tata Motors and Mahindra — already investing in EVs — may find it easier to meet the targets thanks to the super-credit system.

At the same time, the ethanol blending push ties in with India’s E20 fuel rollout, while the nod to CNG reflects its growing urban market. Overall, the proposed regime signals a decisive shift: incremental efficiency tweaks will no longer be enough, and future compliance will depend on diversifying powertrains.

The draft has been circulated to stakeholders, including SIAM, ACMA and major automakers, for comments. With October 16 set as the deadline for feedback, the government is expected to move quickly towards finalising the regulation, underscoring its urgency in pushing the industry towards a cleaner, more efficient future.

At a Glance: Draft CAFE III (2027–32)

• Applicability: Passenger cars (M1 category), April 2027 – March 2032
   
• Targets: Fleet-average fuel consumption tied to vehicle weight; progressively tighter every year
   
• Super Credits:
  
  • Battery EVs & range-extenders: ×3
  • Plug-in hybrids/flex-fuel strong hybrids: ×2.5
  • Strong hybrids: ×2.0
  • Flex-fuel ethanol cars: ×1.5
     
• Carbon Neutrality Factors:
  
  • Petrol (E20–E30): 8% CO₂ discount
  • Flex-fuel ethanol & strong hybrids: 22.3% CO₂ discount
  • CNG: 5%+ CO₂ discount (depending on biogas blend)
     
• Compliance Mechanism: Pooling allowed (up to 3 automakers)
   
• Penalties: Monetary fines for every g/km CO₂ exceedance per car sold; could run into hundreds of crores for large OEMs
   
• Feedback Deadline: October 16, 2025