Why India’s new fuel-efficiency norms a missed opportunity | Explained

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The government has notified the third phase of Corporate Average Fuel Economy (CAFE-3) norms for passenger vehicles, which will come into effect from April 1, 2027 and remain in force until March 31, 2032. (Representational image) | Photo Credit: Reuters

The Story So Far: On September 30, 2026, the Centre notified the third phase of carbon emission norms for passenger vehicles, effective from April 1, 2027 to March 31, 2032. Under the framework, each battery electric vehicle will count as three vehicles toward a carmaker’s fleet-efficiency calculation, while other cleaner technologies and biofuel-based vehicles will receive specified credits.

While there is an industry-wide consensus to the norms, the multiple compliance pathways in the final framework may fall short of driving Indian manufacturers’ to meet their EV commitments.

The government has notified the third phase of Corporate Average Fuel Economy (CAFE-3) norms for passenger vehicles, which will come into effect from April 1, 2027 and remain in force until March 31, 2032.

The norms progressively tighten the fleet fuel-consumption benchmark from 3.996 litres per 100 km in 2027-28 to 3.3273 litres per 100 km in 2031-32, an improvement of about 16.7% over five years. They will apply to new passenger vehicles manufactured or imported for sale in India.

CAFE-3 uses 1,229 kg as the reference vehicle weight. The earlier concession for small cars weighing up to 909 kg has been removed.

Fleet-average fuel consumption will be calculated using the Modified Indian Driving Cycle (MIDC) and expressed in petrol-equivalent litres per 100 km. The norms use notified conversion factors to calculate petrol-equivalent fuel consumption for diesel, CNG, LPG and electric vehicles. For EVs, energy consumption is measured in kWh per 100 km.

Manufacturers can earn, carry forward and trade CAFE credits during a compliance block. Deficits can also be offset by purchasing credits from the Bureau of Energy Efficiency, subject to the prescribed rules.

CAFE-3 gives additional weight to cleaner technologies in calculating a manufacturer’s fleet average. Each battery electric vehicle (BEV) and range-extended EV will count as three vehicles, while each plug-in hybrid or flex-fuel strong hybrid will count as 2.5 vehicles. Strong hybrids will count as 1.6 vehicles and flex-fuel ethanol vehicles as 1.1 vehicles.

The norms also provide Carbon Neutrality Factors for vehicles using ethanol and biofuels. Declared CO₂ emissions will be reduced by 8% for E20 or higher ethanol-blended petrol vehicles, including strong and plug-in hybrids; by 22.3% for flex-fuel ethanol vehicles; by 5% or the notified CBG blending percentage, whichever is higher, for CNG vehicles; and by the actual biofuel-blending percentage for diesel vehicles.

Automakers can also claim a reduction of 1 g CO₂/km for each eligible fuel-efficiency technology, including start-stop systems, tyre-pressure monitoring, regenerative braking, efficient alternators, LED lighting and electric water pumps, subject to an overall cap of 9 g CO₂/km.

The norms allow manufacturers to use these credits and alternative-technology benefits to meet their fleet-average efficiency requirements. Claims during the first compliance block can be self-declared, while those in the second block will require validated test results.

Former NITI Aayog CEO Amitabh Kant has criticised the government’s new CAFE-3 norms, arguing that they fall short of using fuel-efficiency regulation to drive a faster transition towards electric mobility.

“This was an opportunity to technologically leapfrog like India has done with UPI and smartphones. Instead, it is a case of a huge missed opportunity. The new CAFE norms are backward looking at worst and status quo-ist at best. They lack vision and a clear road map for the future. The regulation follows the industry instead of leading it,” he said in a post on X, adding that EVs have merely become one of many options when they should be the final goal. “Our fuel-efficiency rules should push the industry toward that future, not give it room to delay,” Mr. Kant said.

Amit Bhatt, India Managing Director, International Council for Clean Transportation, explains this further, “CAFE-3 has the potential to be one of the most powerful policy tools for accelerating electrification in India’s automotive sector. However, the multiple compliance pathways in the final framework may allow manufacturers to meet their targets largely with existing technologies.

Our analysis of manufacturers’ EV commitments, from both regulatory filings and public announcements, suggests that together they add up to around 20% EV sales by 2030. The final norms, by comparison, can be met with roughly 12% EV uptake by 2032. That is below what the industry has already committed to voluntarily.

Super credits work best when they support emerging technologies at an early stage and help them scale. Extending similar benefits to more established technologies risks diluting that purpose. The same applies to technology credits for widely available features such as start-stop systems.

Taken together, these concessions and alternative pathways may not drive any substantive shift in the industry. The transition to Worldwide Harmonised Light Vehicles Test Procedure (WLTP) offers a timely opportunity to revisit this balance.”

WLTP is the official, standardised method used to measure the fuel consumption, CO₂ emissions, and electric driving range of new vehicles.

The global trend is towards increasingly stringent targets to drive the transition towards electrification.

The EU has set progressively tighter fleet CO₂ targets — 49.5 g CO₂/km for new cars from 2030, compared with 93.6 g/km for 2025–29, and the existing law sets a 100% reduction target from 2035.

China’s longer-term industrial plan also targets New Energy Vehicles (NEVs) accounting for 70% of domestic new passenger-vehicle sales by 2030.

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