India has notified the third phase of its Corporate Average Fuel Economy (CAFE III) norms, introducing stricter fleet-level fuel-efficiency requirements for passenger vehicle manufacturers. The new framework will come into effect from April 1, 2027, and will remain applicable until March 31, 2032. It covers M1 category passenger vehicles manufactured or imported for sale in India.
The latest regulations are designed to reduce fuel consumption while giving carmakers greater flexibility in choosing technologies. Instead of relying only on battery-electric vehicles, manufacturers can use a combination of EVs, hybrids, plug-in hybrids, range-extender electric vehicles, flex-fuel vehicles and other fuel-saving technologies to meet their fleet targets. This technology-neutral approach is one of the key changes under CAFE III.
Fuel Efficiency Targets Become Stricter
Under CAFE III, the permitted fleet-average fuel consumption target will progressively become tighter each year. The benchmark is set at 3.996 litres per 100km for 2027-28 and will reduce to 3.3273 litres per 100km by 2031-32. This represents an improvement of around 16.7 per cent over the five years.
The rules also introduce a revised weight-sensitive approach. The reference vehicle weight has increased from 1,082kg under the earlier framework to 1,229kg, with different efficiency requirements depending on the average weight of a manufacturer’s fleet. Heavier vehicle portfolios will face higher efficiency requirements compared with lighter fleets.
Alternative Fuels Get Regulatory Support
A major focus of CAFE III is the recognition of alternative fuels and cleaner powertrains. The framework introduces a Carbon Neutrality Factor to account for cleaner fuel pathways. EVs, plug-in hybrids, range-extender EVs, flex-fuel vehicles, and strong hybrids can receive additional benefits in fleet calculations.
Battery-electric vehicles receive the highest compliance advantage, with a three-times credit factor. Other technologies, including hybrids and flex-fuel vehicles, also receive varying levels of support. This gives manufacturers multiple routes to improve their fleet-average performance without depending on a single powertrain technology.
What CAFE III Means for Carmakers
The new rules are likely to influence future product planning in India. Carmakers may increase investment in EVs, strong hybrids, plug-in hybrids, flex-fuel models and other fuel-saving technologies as they prepare for progressively stricter targets.
CAFE III also allows manufacturers to use compliance credits, providing additional flexibility when meeting fleet targets. The government says the broader objective is to improve energy efficiency, reduce fossil-fuel consumption and encourage innovation across the passenger vehicle industry.
For Indian car buyers, the biggest impact may become visible through the increasing availability of electrified and alternative-fuel vehicles over the coming years. However, CAFE III does not mandate a fixed EV sales share, leaving manufacturers free to decide which combination of technologies best suits their portfolios.
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