India May Delay New Car Fuel Efficiency Rules as Automakers Lobby Government

According to a report by The Times of India, the Indian government is considering pushing back the implementation of the third phase of Corporate Average Fuel Efficiency (CAFE-III) norms, which are currently scheduled to take effect from April 1, 2027. The development follows sustained lobbying by sections of the automobile industry, which has argued that the proposed targets are too steep and the timeline insufficient for adequate compliance. No official deferral has been announced, but the possibility is being discussed within government circles as the notification deadline draws near without a settled framework in place.

CAFE norms, governed by the Bureau of Energy Efficiency (BEE) under the Energy Conservation Act, require every passenger vehicle manufacturer to ensure that the sales-weighted average CO₂ emissions of its entire model range remain within a prescribed ceiling. Unlike vehicle-specific emission standards, the fleet-wide averaging mechanism means a company can offset a less efficient model with a cleaner one, making overall portfolio composition central to compliance planning. India introduced its first CAFE standards in 2017, setting basic fuel-efficiency and CO₂ limits, which were tightened further under CAFE-II in 2022.

The CAFE-III norms aim to cap fleet-wide emissions at 88.4 CO₂g/km in 2027, gradually reducing to 71.5 CO₂g per km by 2032. The proposed norms target a CO₂ emission level of 91.7 g/km under the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), compared to a slightly relaxed 92.9 g/km proposed by automakers under the Modified Indian Driving Cycle (MIDC). The shift to WLTP, which more closely replicates real-world driving conditions, has itself become a point of contention, as manufacturers argue that the dual cycle reporting requirement during a transition period adds compliance complexity and cost.

Union Power Minister Manohar Lal stated that the government would take a consensual view before implementing the CAFE-III rules, signalling that finalisation of the norms may be contingent on achieving broad industry alignment — a threshold that has so far proved elusive. At a CEOs Council meeting of the Society of Indian Automobile Manufacturers (SIAM) in November, 15 out of 19 automakers voted against a proposed weight-based exemption for small cars, with only Maruti Suzuki and Renault supporting the measure. The vote left SIAM unable to submit a unified position to the government, deepening the regulatory uncertainty and raising the prospect that the government may opt for a delay rather than impose contested norms on a divided industry.

The core dispute centres on how emission targets should be calibrated against vehicle weight. A draft released in September had suggested leniency for petrol cars weighing 909 kg or less — a carve-out widely viewed as favouring Maruti Suzuki, which holds about 95% of India's small-car market. The Power Ministry subsequently removed the exemption and tightened other parameters, increasing pressure on all automakers to boost electric and hybrid vehicle sales. The revised draft drew criticism from Maruti Suzuki, which has built its business around affordable small cars such as the Alto, WagonR and Swift, on the grounds that the weight-based formula structurally advantages manufacturers of heavier, higher-margin vehicles. Tata Motors' Shailesh Chandra had earlier criticised the draft, arguing that defining "small cars" by weight was arbitrary and unnecessary. Rival companies including Tata Motors, Mahindra & Mahindra, and Hyundai have consistently opposed segment-specific carve-outs, arguing that such provisions distort competition and dilute the environmental intent of the regulation.

A parallel dispute has emerged over the quantum of "super credits" assigned to electric and hybrid vehicles. The domestic auto industry, represented by SIAM, is lobbying to increase super credits for electric vehicles and hybrids, which significantly ease compliance by counting them as multiple vehicles. However, international bodies like the International Road Federation (IRF) and the International Council on Clean Transportation (ICCT) have warned that this approach weakens the emission framework, distorts actual pollution data, and deviates from global efforts to reduce carbon emissions. Under the current draft framework, each electric car sold counts as three vehicles for compliance purposes, while plug-in hybrids and flex-fuel hybrids would enjoy multipliers of 2.0 to 2.5. Industry bodies want these multipliers raised further, a position that environmental research groups contend would create the appearance of compliance without achieving proportionate real-world emissions reductions.

The framework will continue to incorporate compliance tools such as credit trading and fleet pooling, with electric vehicles expected to receive more credits than efficient internal combustion engine vehicles. The government is also likely to discontinue specific derogations previously granted to small cars, a move that could increase production costs for entry-level segments. To ease the transition, the rules allow up to three automakers to form a compliance pool, treating them as a single entity for the purposes of calculating fleet-wide averages. Penalties for non-compliance, as reported, could run into hundreds of crores of rupees for large manufacturers, depending on the scale of exceedance per vehicle sold.

Automakers, including SIAM, argue that the 91.7 g/km target is overly ambitious, potentially leading to penalties, job losses, and reduced investments, with proposals for separate norms for vehicles under 1,000 kg causing significant industry debate. The Bureau of Energy Efficiency, however, contends that stricter caps are warranted, as major Indian automakers have already exceeded CAFE-II targets ahead of schedule — a point that regulators use to argue the industry has greater capacity to comply than it acknowledges publicly.

The broader regulatory stakes extend beyond individual company strategies. The proposed fuel-efficiency rules could influence prices, safety, model strategy, and the pace of electrification in the years ahead. Industry analysts note that tighter norms would structurally favour manufacturers with established electric vehicle portfolios, while placing disproportionate pressure on companies whose core competency lies in affordable, entry-level petrol cars — precisely the segment that accounts for the largest share of new vehicle registrations in India. Any significant rise in the cost of small cars, analysts caution, risks dampening demand in a price-sensitive market and could have consequences for the broader goal of increasing vehicle ownership across income groups.

The Times of India notes that with the April 2027 deadline under a year away, the window for finalising a workable and broadly accepted framework is narrowing. Whether the government opts for a deferral, a modified set of norms, or presses ahead with the current draft is expected to become clearer in the weeks following the close of the latest stakeholder consultation round.