Written by PPL Newsroom• October 1, 2026• 2:38 pm• Policy

CAFE-III notified: India sets tighter fuel-efficiency targets for new cars to 2032

The Ministry of Power’s rules start in April 2027 and aim for a 16.7% fleet-efficiency gain. Carmakers can meet them through EVs, hybrids, ethanol or CNG.

The Ministry of Power has notified the third phase of India’s Corporate Average Fuel Economy (CAFE-III) norms for passenger cars. They take effect on 1 April 2027 and remain applicable until 31 March 2032. The rules target a 16.7 per cent improvement in fleet-average fuel consumption over five years. They also give carmakers several ways to get there.

What the numbers mean

CAFE rules apply to a manufacturer’s whole fleet, not to individual models. Compliance is calculated from the sales-weighted average fuel consumption of each carmaker’s portfolio. The benchmark tightens from 3.996 litres per 100 km in 2027-28 to 3.327 litres per 100 km in 2031-32, according to the notification and an official statement. In emissions terms, the limit for a reference-weight fleet falls from about 94.8g CO2/km in FY28 to roughly 78.9g/km in FY32.

The targets depend on vehicle weight. The reference weight rises to 1,229 kg from 1,082 kg. The government said this means softer targets for lighter vehicles and tougher ones for heavier vehicles. A separately proposed small-car concession was dropped.

Many routes to compliance

Super-credits count cleaner vehicles as more than one car when the fleet average is calculated. Battery and range-extended EVs get the highest multiplier, 3.0. Plug-in hybrids and flex-fuel strong hybrids get 2.5, strong hybrids 1.6 and flex-fuel vehicles 1.1.

Alternative fuels also earn recognition. Vehicles running on E20 or higher ethanol blends, including specified hybrids, get an 8 per cent factor on tailpipe CO2. Flex-fuel ethanol vehicles get 22.3 per cent. Makers can claim a 1g CO2/km reduction for each eligible efficiency technology, up to 9g CO2/km. Eligible technologies include start-stop systems and low-rolling-resistance features such as tyre-pressure monitoring.

What this means for India

Official material says India’s reliance on imported fossil fuels is rising because domestic petroleum resources are limited. CAFE-III tackles this through the cars sold, not through fuel prices. It also lets Indian carmakers choose among electric, hybrid, ethanol and CNG routes. Buyers are unlikely to see changes in showrooms before April 2027. After that, the mix of powertrains on offer will increasingly reflect these targets.

Credits, trading and what to watch

Carmakers that beat their targets earn credits, and those that miss accumulate debits. Surplus credits can be traded between manufacturers, or debits can be offset by buying credits from the Bureau of Energy Efficiency. The buyout price starts at ₹2,500 per g CO₂/km in 2027-28 and rises by ₹500 a year to ₹4,500 in 2031-32. Compliance runs in two blocks, FY28–30 and FY31–32, and WLTP test reporting begins in April 2027.

The rules took a long time to settle. Forbes India reports that they came after nearly 30 months, multiple drafts and intense industry lobbying. On the winners, Deccan Chronicle reports that Maruti Suzuki, the largest small-car maker, is expected to gain the most from the weight-based framework. Analysts have also pointed to a trade-off. Removing the special concession may reduce regulatory distortion but could raise efficiency costs for entry-level models.

Earlier phases set the direction. CAFE-II capped emissions at 113 g CO2 per km, down from 130 g under CAFE-I, which took effect in 2017. The new targets cut the benchmark further.