The Indian government is evaluating incentive frameworks for small cars under Corporate Average Fuel Efficiency (CAFE) norms followed in major global automobile markets, including the United States, China, the European Union, Japan, and South Korea. The move is aimed at aligning India’s upcoming CAFE 3 regulations with international best practices, according to senior industry sources.
The development comes amid growing differences among domestic automakers—most notably Maruti Suzuki and Tata Motors—over proposed weight-based concessions for small cars under the third phase of CAFE norms, which are scheduled to take effect next year. These differences surfaced during consultations on the draft norms issued by the Bureau of Energy Efficiency (BEE).
Sources said the Society of Indian Automobile Manufacturers (SIAM) has, for the first time, submitted comprehensive global data to the Centre detailing how small cars are treated under CAFE regulations across key automotive markets. The data reportedly covers nearly 100% of vehicles sold in countries where CAFE norms are enforced.
“The Centre asked for global regulatory data to determine CAFE 3 norms after clear differences emerged between automakers in India,” said a senior industry executive. “The objective is to build regulations that support environmental goals, improve fuel efficiency, ease road congestion, and remain aligned with global standards.”
According to SIAM’s presentation, China offers CAFE relaxations for cars weighing less than 1,090 kg, while the European Union provides leniency in emission targets for vehicles below 1,115 kg. South Korea extends similar benefits to cars under 1,100 kg. Japan follows a continuous parabolic approach, where emission targets progressively tighten with increasing vehicle weight, while the US offers incentives based on vehicle footprint, with benefits extended to models measuring under 41 square feet.
In most major markets—except the EU—such relaxations for small cars have been in place since 2015–16, highlighting the long-standing global recognition of small vehicles’ role in reducing fuel consumption and emissions.
The Ministry of Heavy Industries (MHI) and the Ministry of Power (MoP) received SIAM’s submission following a directive from the Centre. A senior MHI official confirmed that industry feedback has been forwarded to the BEE without endorsements. “A final decision on the norms will be taken by the BEE after considering all stakeholder views,” the official said.
CAFE 3 norms, aimed at curbing fuel consumption and reducing vehicular CO₂ emissions, are slated for implementation from April 2027. Since a vehicle’s CO₂ output is directly linked to fuel usage, the final structure of the norms is expected to have a significant impact on vehicle design strategies, pricing, and India’s small-car segment.
