As of April 2027, India’s automotive manufacturers will be subject to increasingly stringent fuel consumption regulations over a five-year period, as outlined in the Ministry of Power’s notification of the third phase of the Corporate Average Fuel Economy (CAFE) norms. These regulations will apply to M1 category passenger vehicles manufactured or imported for sale in India between April 1, 2027, and March 31, 2032. The new norms provide manufacturers with a broader range of compliance tools, including electrification, biofuels, efficiency technologies, and credit trading. This notification follows a revised draft that was released for comment in July, with feedback accepted until August 6.
The Ministry of Power’s announcement comes after a period of consultation and review, during which stakeholders had the opportunity to provide input on the proposed regulations. The final version of the norms takes into account the feedback received and provides a framework for manufacturers to reduce their fuel consumption and greenhouse gas emissions.
New Regulations and Fleet-Based Compliance
Compliance with the CAFE norms will be assessed on a fleet-wide basis, rather than on a model-by-model basis, using a sales-weighted average fuel consumption calculation. The target fuel consumption level for each manufacturer will be determined by the average unladen weight of the vehicles it sells, using the formula A×(W−1,229)+c, where W represents the fleet-average weight. As a result, manufacturers with heavier vehicle portfolios will be allowed a higher fuel consumption limit than those with lighter portfolios.
For a fleet with an average weight of exactly 1,229 kg, the maximum permitted fuel consumption will start at 3.996 liters of petrol equivalent per 100 km in FY28 and will decrease to 3.860 in FY29, 3.7585 in FY30, 3.5313 in FY31, and 3.3273 in FY32. In terms of CO2 emissions, this corresponds to approximately 94.8 g/km in the first year and 78.9 g/km in the final year. The trajectory of the fuel consumption limits is consistent with the July draft, but differs from the September 2025 proposal, which had a steeper slope and lower reference weight. The adjustments aim to ease compliance challenges for manufacturers with heavier vehicle portfolios.
Since the compliance target is fleet-wide, manufacturers can balance fuel-hungry models with more efficient ones, making the sales mix a critical factor in achieving compliance. This approach allows manufacturers to optimize their product offerings and reduce their overall fuel consumption.
WLTP Integration and Small-Car Debate
From April 1, 2027, manufacturers will be required to declare CO2 emissions figures for their models under both the existing Modified Indian Driving Cycle and the Worldwide Harmonised Light Vehicles Test Procedure (WLTP), marking the first step in India’s transition to the global standard. The conversion factor for translating the corporate target from MIDC to WLTP has not yet been announced and will be notified separately by the Ministry of Road Transport and Highways, in consultation with the Bureau of Energy Efficiency, using data from designated testing agencies.
A “Carbon Neutrality Factor” will be applied to vehicles that run on cleaner fuels, reducing the tailpipe CO2 emissions counted for these vehicles. The factor will be 8% for vehicles using E20 or higher ethanol blends, including strong and plug-in hybrids; 22.3% for flex-fuel ethanol vehicles; 5% for CNG vehicles, or the notified compressed biogas blending share if higher. For diesel vehicles, a benefit will be tied to the biofuel blend notified by the petroleum ministry. This approach reflects a multi-fuel strategy for reducing oil consumption and greenhouse gas emissions, rather than relying solely on electrification.
Credit Trading and Electrification Incentives
The CAFE III regulations formalize a credit-and-debit system, where manufacturers that exceed their targets earn credits, while those that fall short accumulate debits, all recorded in a company-specific “passbook”. Manufacturers can sell surplus credits to their competitors on mutually agreed terms, introducing a market element to the regulations. Companies in deficit can also purchase credits from the Bureau of Energy Efficiency at a price per g CO2/km that increases annually: FY28 2,500; FY29 3,000; FY30 3,500; FY31 4,000; FY32 4,500. The rising cost is designed to discourage reliance on bought credits and encourage manufacturers to improve their own vehicles.
Alternative powertrains will be given greater weight in the fleet average calculation: Battery-electric and range-extended electric vehicles will be counted as 3.0; plug-in hybrids and flex-fuel strong hybrids as 2.5; strong hybrids as 1.6; and flex-fuel ethanol vehicles as 1.1. As a result, electric vehicles will have a greater impact on reducing a manufacturer’s fleet average fuel consumption than conventional vehicles of similar size.
Strong hybrids and flex-fuel models will still receive a boost, although smaller than initially proposed. The regulations do not prescribe a specific technology, and the outcome will depend on each company’s volumes, weights, and sales mix. Tata Motors, Mahindra, and JSW MG have been promoting electric vehicles, while Toyota and Maruti Suzuki favor strong hybrids, and Hyundai and Kia are adding electric vehicles to their portfolios while maintaining large petrol and diesel operations.
Manufacturers can also claim credits for efficiency technologies, up to a maximum of 9 g/km, using a list of 12 approved features, including start-stop systems, tire-pressure monitoring, regenerative braking, and advanced glazing. In the first compliance block, these savings can be claimed through self-declaration, while in the second block, they must be supported by validated tests following procedures set by the Ministry of Road Transport and Highways. This approach provides an incentive for manufacturers to adopt efficiency technologies and reduce their fuel consumption.
The compliance period is divided into two blocks: a three-year block (FY28 to FY30) and a two-year block (FY31 and FY32). Credits and debits will be assessed annually and can be carried forward within each block, but unused credits will lapse at the end of each block. This allows manufacturers to build up credits in strong years and use them in later years, making it easier to manage product launches and comply with the regulations. Manufacturers with annual eligible volumes below 1,000 units are exempt from the target but must report their fuel consumption figures.