01 - 10 - 2026

Explainer: What India’s new CAFE-III norms mean for carmakers

The Corporate Average Fuel Economy Phase III (CAFE-III) regulations are India’s newly gazetted, stringent fuel-efficiency and carbon emissions framework for passenger vehicles. Notified on September 29, 2026, the policy governs category M1 motor vehicles manufactured or imported for domestic sale across a five-year lifecycle running from April 1, 2027, through March 31, 2032.

The driving force behind rolling out these standards now stems from India’s commitment to achieving net-zero emissions by 2070, reducing national dependence on imported crude oil, accelerating the automotive sector’s green transition, and aligning domestic testing procedures with the Worldwide Harmonized Light Vehicles Test Procedure alongside the existing Modified Indian Driving Cycle.

Under this fleet-wide policy, an automaker’s target is determined not by individual car models but by the weighted average unladen mass of its total sales volume using the formula , where  is set at a fixed reference mass of 1,229 kg, while the multiplier  systematically decreases from 0.00158 in FY28 down to 0.00131 in FY32 and the constant  drops from 3.9960 to 3.3273 litres per 100 km.

Rather than keeping the controversial 3 g/km emissions deduction for petrol cars weighing under 909 kg originally proposed in earlier drafts, a point of fierce debate between certain vehicle manufacturers, the final rules eliminate the explicit small-car carve-out. Instead, the rules flatter the main mathematical equation by raising the reference mass, thereby granting lighter vehicle fleets structural headroom without singling out one specific segment.

Crucially, the policy heavily incentivises electrified and alternative-fuel powertrains through generous volume derogation factors that allow battery electric vehicles and range-extended EVs to count as three vehicles in fleet calculations, while plug-in and flex-fuel strong hybrids receive a 2.5x multiplier, strong hybrids get 1.6x, and flex-fuel ethanol cars get 1.1x.

Further advantages include Carbon Neutrality Factors that discount tailpipe emissions by 8 per cent for E20 ethanol-blended petrol cars, 22.3 per cent for flex-fuel models, and at least 5 per cent for CNG vehicles, alongside tech credits up to 9 g/km for installing fuel-saving innovations like regenerative braking, micro-hybrids, solar-reflective paint, and stop-start systems.

To ensure flexible compliance over time, performance is tracked in two blocks covering FY28–FY30 and FY31–FY32 using a passbook credit-and-debit mechanism where surplus credits can be traded between automakers during an annual October trading window or purchased directly from the Bureau of Energy Efficiency at prices scaling from ₹2,500 per g /km in FY28 up to ₹4,500 in FY32, while small-volume manufacturers producing under 1,000 units annually remain exempt from target penalties.

Industry voices

“The CAFÉ-III norms introduce a progressive and forward-looking framework that recognises India’s mobility transition towards greener and cleaner technologies, something required to reduce the dependence on imported fossil fuels that place a significant burden on the country’s foreign exchange resources. The 3 norms recognise that the road to electrification will be a multi-powertrain journey, with batteries acting as the bedrock of this green transition,” Ranjan Nayak, CEO at JSW Motors said.

“The government’s decision to support a range of clean and increasingly efficient technologies – including battery electric vehicles (BEVs), range-extended electric vehicles (REEVs) and plug-in hybrid electric vehicles (PHEVs) – will help accelerate fuel efficiency, drive technology adoption and increasingly de-carbonise passenger vehicles in the country,” Nayak added.

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