CAFE-III Deadline Stays, Government Signals no Reprieve for Carmakers

India's automobile industry will have to meet tougher fuel efficiency standards from April 1, 2027, with the government indicating on Monday that the deadline for the third phase of the Corporate Average Fuel Efficiency (CAFE) rules will not be pushed back.

Hanif Qureshi, additional secretary at the Ministry of Heavy Industries, said the question of an extension was unlikely to arise because the ministry had been consulting manufacturers through the drafting process and had taken their feedback on board. The CAFE-III window runs from April 1, 2027, to March 31, 2032.

The statement comes two days before an expected high-level meeting called by the government on April 16, where secretaries from the ministries of power, heavy industries, and road transport might work towards a consensus before the rules are notified. The meeting might be intended to resolve the differences that have kept the draft in flux for months.

Those differences run along a familiar fault line in the Indian car market. Maruti Suzuki, which sells more small cars than any other manufacturer, and Toyota Kirloskar want the norms to treat small, lighter and more affordable cars with a degree of leniency, arguing that these vehicles are already fuel-efficient by virtue of their weight and that stricter targets would price first-time buyers out of the market.

Tata Motors, Mahindra, Hyundai and Kia have pushed back, saying a differential framework would penalise manufacturers that have invested in heavier cars with more safety equipment and cleaner powertrains.

The argument matters because small cars, once the spine of Indian passenger vehicle sales, have been losing share to sport utility vehicles for close to a decade. Maruti Suzuki's chairman, R C Bhargava, has repeatedly said that the segment needs policy support if it is to recover, and the company has framed the CAFE debate as part of that broader conversation.

The draft CAFE-III norms, as they stand, propose a more flexible compliance framework than the current regime. Penalties are expected to be eased, and manufacturers who overshoot their emission reduction targets will be allowed to trade surplus carbon credits with those falling short, on mutually agreed terms. Carmakers carrying a debit balance will also be allowed to offset it by buying credits from the Bureau of Energy Efficiency.

The draft itself has been recalibrated at least once. The latest version, circulated earlier in April, relaxes the emission targets compared with the September draft, with the benefit tilted towards smaller cars, though through a different route than originally proposed. 

The formula that underpins CAFE has not changed, but the constants have. The multiplier has been reduced from 0.002 to 0.00158 for the first year; the reference vehicle weight has been raised from 1,170kg to 1,229kg; and the baseline fuel consumption has increased from 3.7264 litres per 100km to 3.9960 litres per 100km for 2027-28. The combined effect is a flatter curve and higher permissible emissions for a given vehicle weight. 

What has gone from the new draft is the explicit cushion for sub-four-metre petrol cars, which the September version had proposed in the form of an additional 3g of carbon dioxide per kilometre relief, capped at 9g per model per year. That concession, seen at the time as a direct win for Maruti and other small car makers, has now been folded into the revised curve.

The effect is broadly similar for small cars, but the relief is no longer badged as a specific benefit for the segment, which is why the Maruti camp is still pressing for an explicit provision for the smaller segment.

The super credits system, which lets cleaner vehicles count as more than one car when a manufacturer's fleet emissions are calculated, has also been tweaked. Battery electric vehicles continue to count as three, but the multiplier for strong hybrids has been trimmed from 2.0 to 1.6, and for flex-fuel vehicles from 1.5 to 1.1, according to documents from the Bureau of Energy Efficiency. The changes make hybrids and flex-fuel cars less attractive as a compliance tool, a shift that Toyota, which has led the hybrid push in India, is understood to be unhappy with.

The CAFE rules, issued under the Energy Conservation Act, apply to M1 category passenger vehicles, covering cars that seat up to nine people and weigh up to 3,500kg. The third phase is meant to pull India's passenger car fleet closer to the fuel economy levels seen in Europe and East Asia, and the government has so far resisted the argument that the industry needs more time.