Government Notifies CAFE III Norms: INDUSTRY REACTIONS

India's Ministry of Power has notified the final CAFE III fuel-efficiency norms for passenger cars (M1 category), applicable from April 1, 2027 to March 31, 2032. Targets are set at the manufacturer level and tighten every year. For a reference-weight fleet, the limit falls from about 94.8g CO2/km in FY28 to roughly 78.9g/km in FY32.

Battery and range-extended EVs get the highest super-credit multiplier of 3.0. Plug-in hybrids and flex-fuel strong hybrids get 2.5, strong hybrids 1.6 and flex-fuel vehicles 1.1. CNG, ethanol and biofuel-blend vehicles also receive carbon-neutrality benefits, and up to 9g/km can be claimed for efficiency technologies.

Carmakers can now trade credits with each other or buy them from the Bureau of Energy Efficiency, at prices rising from ₹2,500 to ₹4,500 per g CO2/km. Compliance runs in two blocks (FY28–30 and FY31–32), and WLTP reporting begins in April 2027. The proposed small-car concession was dropped.

The following are industry reactions to this development:

• Vijendra Singh, President, All India Distillers' Association (AIDA)
  "The notification of CAFE-III norms is a positive development for both the automobile and biofuel industries and an important step in shaping India's clean mobility pathway. The recognition of ethanol and flex-fuel vehicles through a 22.3% Carbon Neutrality Factor and 1.1x super-credit provides greater policy visibility to biofuels and gives automakers a clearer framework to plan for flex-fuel technologies. For the ethanol industry, this creates an enabling framework for the next phase of growth, while giving automakers greater clarity to plan and invest in flex-fuel technologies. The focus now should be on building the wider FFV ecosystem, including vehicle availability, fuel infrastructure and consumer awareness, so that the potential of India's ethanol capacity can translate into greater clean mobility adoption. CAFE-III is not just an auto-sector regulation; it creates a formal policy bridge between India's expanding ethanol ecosystem and the future of clean mobility."
   
• Suresh D, Group Chief Technology Officer & CEO, Spark Minda Technical Centre
  “The CAFE III norms mark an important shift in India’s automotive industry, making fleet-level efficiency and technology adoption an increasingly important part of vehicle development. For Tier 1 suppliers, this creates an opportunity to work more closely with OEMs in developing solutions that improve efficiency across different vehicle architectures. We see the transition as being broader than a single powertrain technology, with EVs, hybrids and other electrified configurations likely to coexist across segments as the market evolves. This will require suppliers to build capabilities across electronics, power management, vehicle controls, lightweighting and other technologies that contribute to overall vehicle efficiency. At Spark Minda, we believe the ability to support OEMs across this evolving technology landscape, while continuing to strengthen localisation and engineering capabilities, will be critical. CAFE III will therefore not only influence vehicle design but also accelerate the evolution of India’s component ecosystem.”
   
• Rajat Mahajan, Partner and Auto Sector leader, Deloitte India
  “The CAFE 3 norms prioritize the role of transportation in tacking air pollution, and give the industry a clear direction for the next five years. The targets get tighter every year, more so for the heavy vehicles under the final draft version, but manufacturers can reap benefits by transitioning to electric, hybrid, alternative-fuel and fuel-saving technologies. Adhering the norms will require careful product planning and substantial investment in new age technologies. These norms are going to accelerate India’s NEV transition. OEMs who may not be able to switch their larger portfolio fast enough, may end up trading credits within the 2 compliance blocks to avoid penalties.”
   
• Rahul Bharti, Senior Executive Officer, Corporate Affairs, Maruti Suzuki
  “The CAFE regulation is a central policy instrument which accelerates India’s decarbonisation and energy security journey in the mobility sector. We welcome and appreciate the CAFE-III notification for M1 passenger vehicles issued by the Government of India. It is a comprehensive regulation arrived at after scientific data calculations and detailed stakeholder and inter-ministerial consultation with ambitious targets for energy efficiency improvement and CO2 reduction. The regulation recognizes the contribution of multiple powertrain technologies and fuels encouraging multi-faceted R&D and innovation. A credit/debit mechanism is an improvisation over the previous CAFE-II regulation. Maruti Suzuki is one of the front-runners in absolute efficiency performance in CAFE phases I and II and will continue its leadership in CAFE-III also.”
   
• Velusamy R, President, Automotive Business, M&M
  “We welcome the Government’s notification of the new CAFE-III norms. Following extensive dialogue between the Government and industry, the framework strikes a pragmatic balance between what is necessary for the environment and what is achievable for the industry, while strengthening India’s energy security. The targets are appropriately ambitious and provide a clear trajectory through 2031-32. We also welcome the inclusion of a compliance block, technology credits, cleaner-fuel benefits and super credits for EVs and other advanced technologies. At Mahindra, we are confident in our ability to meet these norms, backed by our sustained investments in technology, electrification and cleaner mobility. This is a pragmatic, forward-looking framework and a double win for the environment and India’s energy security. We thank the Government for its constructive and consultative approach.”
   
• Tarun Garg, MD & CEO, Hyundai Motor India Limited
  “The final notification of CAFE-III norms is a positive step by the Government towards advancing sustainable mobility in India and presents a clear long-term roadmap for the auto industry. Hyundai Motor India Limited (HMIL) remains committed to complying with all applicable regulatory norms and meeting current and future CAFE requirements. The norms provide a clear and predictable regulatory roadmap through a 3+2 year compliance block structure, enabling manufacturers to undertake long-term product and technology planning with greater certainty. The framework adopts a technology-neutral approach recognizing multiple pathways to improve fleet efficiency including electrification, alternative fuels and advanced fuel-saving technologies. The provisions for credit trading, pooling and flexible compliance mechanisms offer manufacturers greater flexibility while promoting innovation, investment and competitiveness in India's transition towards sustainable mobility. HMIL has already committed to a green portfolio share of 50% plus over the next 4 to 5 years comprising of cleaner technologies like EVs, Hybrids, CNGs etc.”
   
• Shailesh Chandra, MD & CEO, Tata Motors Passenger Vehicles Limited
  “The CAFE III framework is an important step in advancing India’s journey towards cleaner and more sustainable mobility. We welcome the Government’s consultative approach in developing a framework that combines ambitious fuel efficiency targets with market-based compliance mechanisms. Importantly, the continued recognition of zero-emission technologies reinforces the critical role of electrification in achieving India’s long-term decarbonisation objectives. The clarity and predictability provided by the framework will enable the industry to plan investments, accelerate innovation and offer customers an increasingly compelling range of cleaner mobility solutions. At Tata Motors, we remain committed to leading this transition through sustained investments in electric mobility and other technologies that can meaningfully reduce emissions.”
   
• Vikram Gulati, Country Head & Executive VP, Toyota Kirloskar Motor
  "We congratulate the Government of India for bringing out a progressive and forward-looking CAFE 3 regulation that reflects the nation's aspiration to advance sustainable mobility. The CAFE 3 regulation takes due cognisance of the importance of various clean technologies using an objective and scientific based assessment methodology to arrive at a regulation that is best suited for our national interests.  Therefore, Aligning to multi pathway approach ,battery electric vehicles (BEVs), Range Extenders (REEV), Plug-in Hybrid Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs) and Flex Fuel Vehicles (FFVs), including Flex Fuel Strong Hybrid Vehicles (FFV-SHEV) have all been fairly recognised. This will enable the country to rapidly reduce its dependence on imported fossil fuels by leveraging the benefits of high levels of energy efficiency provided by Hybrid vehicles and substituting fossil fuels with electricity using BEVs/PHEVs/REEVs as well as with indigenous and green biofuels like ethanol, that also provide higher income opportunities to our farmers, by using FFV & FFV-SHEV. We would also like to thank the Government for following a deep & transparent consultation process with all stakeholders in formulating this regulation that allowed all points of view to be objectively evaluated and incorporated in the final regulation. This regulation is a big step forward and will play an important role in India’s march towards realising its goal of energy independence by 2047 as well as carbon net-neutral by 2070."
   
• Som Kapoor, Partner, Automotive, EY-Parthenon
  "The newly notified CAFE III framework establishes a clear and progressive roadmap for improving fuel efficiency across India’s passenger vehicle industry from FY2027-28 to FY2031-32. The regulations introduce annual fuel-consumption targets, promote technology-neutral compliance pathways, and provide manufacturers with greater flexibility through mechanisms such as super credits for electrified vehicles, recognition of alternative fuels, technology derogations, credit trading, and compliance buyouts. The regulations also revise the reference weight used for target calculations to 1,229 kg, reflecting the increasing share of larger and heavier vehicles in the Indian market."
   
• Pratik Shah, Partner, Automotive, EY-Parthenon
  "A notable addition is the introduction of Carbon Neutrality Factors, which provide compliance benefits for vehicles using ethanol-blended fuels, flex-fuel ethanol, CNG, CBG blends and biofuel-blended diesel. The framework, through volume derogation factors recognizes NEVs such as BEVs and distinctions between PHEVs, SHEVs and HEVs and flex -fuel vehicles, while also recognizing efficiency-enhancing technologies such as start-stop systems, regenerative braking, advanced glazing, high-efficiency air-conditioning systems and micro-hybrid technologies."
   
• Aneesh Ajayan, Partner, Automotive, EY-Parthenon
  "Over the next five years, the regulations are certain to guide and influence product development across OEM portfolios. Manufacturers would likely increase deployment of fuel-efficiency technologies over conventional ICE vehicles while also expanding hybrid, flex-fuel and electric vehicle offerings to improve fleet-average compliance. For OEMs with predominantly ICE-led portfolios, the framework increases the strategic importance of electrified and alternative-fuel powertrains as part of the overall portfolio mix. Overall, CAFE III strikes a balance between raising fuel-efficiency standards and preserving compliance flexibility for manufacturers. The framework is expected to drive greater adoption of advanced technologies and low-carbon powertrains while supporting energy security, reducing fuel consumption, and enabling a measured transition towards cleaner mobility in India."