India has tightened fuel-efficiency requirements for passenger vehicles with the introduction of the Corporate Average Fuel Economy (CAFE-III) norms, which will come into effect from April 1, 2027.

The new rules are aimed at improving the overall fuel efficiency of passenger vehicles sold in India and reducing fuel consumption and emissions from the automotive sector. The CAFE-III framework will remain in force until March 31, 2032.

Under the new norms, the fleet-wide fuel-consumption target will become progressively stricter during 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 by 2031-32, requiring automakers to steadily improve the efficiency of their vehicle fleets.

How the new CAFE norms work

CAFE regulations apply to manufacturers based on the average efficiency of the passenger vehicles they sell. The system takes factors such as vehicle weight and the composition of a manufacturer’s fleet into account, rather than imposing one identical fuel-efficiency requirement on every model.

The latest framework also provides incentives for manufacturers that increase the share of more efficient and alternative-powertrain vehicles in their portfolios.

Battery electric vehicles (BEVs) and range-extended electric vehicles receive enhanced consideration under the compliance system, while other technologies such as plug-in hybrids can also receive credits.

Manufacturers that perform better than their prescribed targets can accumulate credits, while those falling short can use available credits or trade them under the applicable mechanism.

Impact on carmakers

The tighter CAFE-III requirements are expected to encourage automakers to invest further in fuel-efficient engines, hybrid technology, electric vehicles and other efficiency-improving technologies.

The rules could also influence the mix of vehicles manufacturers offer in India. Companies with a higher proportion of efficient and electrified vehicles may have greater flexibility in meeting their fleet-wide targets.

The government has also removed the separate concession previously proposed for passenger vehicles weighing less than 909 kg, while vehicle weight continues to play a role in determining the applicable efficiency requirements.

What it means for car buyers

The CAFE-III norms do not mean that every passenger vehicle sold in India must individually achieve the new fleet-average fuel-consumption target. Instead, compliance is assessed across a manufacturer’s passenger-vehicle fleet.

However, the tighter requirements could gradually influence the types of petrol, diesel, hybrid and electric vehicles introduced in the Indian market. Manufacturers may increasingly focus on improving fuel efficiency and expanding electrified powertrains as the new targets become more demanding.

The CAFE-III norms therefore mark another step in India’s efforts to improve vehicle efficiency while encouraging the automotive industry to move towards cleaner and more efficient technologies.