The Ministry of Power has notified the final Corporate Average Fuel Economy (CAFE) III norms for passenger vehicles in the M1 category. The regulations will come into effect from April 1, 2027, and remain applicable through March 31, 2032.
The new framework sets manufacturer-level fleet efficiency targets that become progressively stricter each year. For a reference-weight fleet, the prescribed limit will decline from around 94.8g CO₂/km in FY2027-28 to approximately 78.9g CO₂/km in FY2031-32.
The CAFE III framework provides higher volume derogation factors, or super credits, for electrified vehicles. Battery electric vehicles (BEVs) and range-extended electric vehicles (REEVs) receive the highest multiplier of 3.0, followed by plug-in hybrids and eligible flex-fuel strong hybrids at 2.5, and strong hybrids at 1.6. Flex-fuel vehicles receive a factor of 1.1.
The regulations also recognise the carbon-neutrality benefits of fuels and technologies including CNG, ethanol and biofuel blends, while manufacturers can claim up to 9g/km through approved fuel-efficiency technologies.
Manufacturers will also be able to trade compliance credits with other automakers or purchase credits from the Bureau of Energy Efficiency (BEE). Credit prices will range from ₹2,500 to ₹4,500 per g CO₂/km. Compliance will be assessed across two blocks — FY2027-28 to FY2029-30 and FY2030-31 to FY2031-32 — while WLTP-based reporting will begin from April 2027. The proposed concession for small cars has not been retained in the final framework.
The notification has drawn responses from automakers, industry associations, component suppliers and consulting firms.
Vijendra Singh, President, All India Distillers’ Association (AIDA)
Vijendra Singh described the notification as a positive development for the automobile and biofuel industries, particularly because it recognises ethanol and flex-fuel technologies through a 22.3% Carbon Neutrality Factor and a 1.1x super-credit.
He said the framework provides greater policy visibility for biofuels while giving automakers clearer direction for investment in flex-fuel technologies. Singh also highlighted the need to develop the broader FFV ecosystem, including vehicle availability, fuel infrastructure and consumer awareness.
According to him, CAFE III establishes a policy link between India’s expanding ethanol ecosystem and the country’s clean-mobility transition.
Suresh D, Group Chief Technology Officer & CEO, Spark Minda Technical Centre
Suresh D said CAFE III marks an important shift towards fleet-level efficiency and technology adoption in vehicle development.
He noted that the regulations create opportunities for Tier 1 suppliers to work more closely with OEMs on technologies that improve efficiency across different vehicle architectures. He expects EVs, hybrids and other electrified configurations to coexist as the market evolves.
This, he said, will require suppliers to strengthen capabilities in electronics, power management, vehicle controls, lightweighting and other efficiency-related technologies. He added that localisation and engineering capabilities will become increasingly important as the component ecosystem adapts to the new regulatory environment.
Rajat Mahajan, Partner and Auto Sector Leader, Deloitte India
Rajat Mahajan said CAFE III provides the automotive industry with a clear direction for the next five years while increasing the emphasis on fuel efficiency and emissions reduction.
He noted that manufacturers can benefit from transitioning towards electric, hybrid, alternative-fuel and fuel-saving technologies, although compliance will require product planning and investment in newer technologies.
Mahajan added that the framework could accelerate India’s transition towards new-energy vehicles, while manufacturers that are unable to transition their portfolios quickly enough may use credit trading within the two compliance blocks to meet their obligations.
Rahul Bharti, Senior Executive Officer, Corporate Affairs, Maruti Suzuki
Rahul Bharti described CAFE as a key policy instrument supporting India’s decarbonisation and energy-security objectives.
He welcomed the CAFE III notification, noting that it was developed using scientific calculations and stakeholder and inter-ministerial consultations. According to Bharti, the regulation recognises multiple powertrain technologies and fuels, encouraging R&D and innovation across the industry.
He also highlighted the introduction of the credit/debit mechanism compared with CAFE II and said Maruti Suzuki, which has maintained strong absolute efficiency performance during CAFE I and CAFE II, will continue to focus on efficiency under CAFE III.
Velusamy R, President, Automotive Business, Mahindra & Mahindra
Velusamy R welcomed the new CAFE III norms, saying the framework reflects extensive dialogue between the government and industry.
He said the regulations establish an ambitious but achievable trajectory through FY2031-32 while supporting India’s environmental and energy-security objectives.
Mahindra also welcomed provisions covering compliance blocks, technology credits, cleaner-fuel benefits and super credits for EVs and other advanced technologies. Velusamy said the company is confident of meeting the requirements, supported by its investments in technology, electrification and cleaner mobility.
Tarun Garg, MD & CEO, Hyundai Motor India
Tarun Garg described the final CAFE III notification as a positive step towards sustainable mobility and said it provides a long-term roadmap for the automotive industry.
He highlighted the 3+2-year compliance block structure, which he said will provide manufacturers with greater certainty for long-term product and technology planning.
Garg also pointed to the framework’s technology-neutral approach, which recognises electrification, alternative fuels and fuel-efficiency technologies. He said credit trading, pooling and other compliance mechanisms provide manufacturers with flexibility while encouraging investment and innovation.
Hyundai has already committed to a 50%+ green portfolio share over the next four to five years, including EVs, hybrids and CNG vehicles, he added.
Shailesh Chandra, MD & CEO, Tata Motors Passenger Vehicles
Shailesh Chandra said CAFE III is an important step in India’s transition towards cleaner and more sustainable mobility.
He welcomed the government’s consultative approach and the combination of fuel-efficiency targets with market-based compliance mechanisms. Chandra also highlighted the continued recognition of zero-emission technologies and their role in India’s long-term decarbonisation efforts.
According to him, the clarity provided by the framework will enable automakers to plan investments, accelerate innovation and expand cleaner mobility options for consumers.
Vikram Gulati, Country Head & Executive VP, Toyota Kirloskar Motor
Vikram Gulati welcomed CAFE III and described it as a framework aligned with India’s sustainable-mobility objectives.
He highlighted the regulation’s multi-pathway approach, which recognises BEVs, REEVs, PHEVs, strong hybrids and flex-fuel technologies, including flex-fuel strong hybrids.
Gulati said combining hybrid efficiency with electrification and indigenous biofuels such as ethanol could help reduce India’s dependence on imported fossil fuels while also supporting the agricultural sector.
He also welcomed the government’s consultation process and said CAFE III can contribute to India’s longer-term goals of energy independence by 2047 and carbon neutrality by 2070.
Ranjan Nayak, CEO, JSW Motors
Ranjan Nayak welcomed the CAFE III framework, describing it as a policy supporting India’s transition towards cleaner and more fuel-efficient mobility.
He highlighted the recognition of multiple electrified powertrains, including BEVs, REEVs, PHEVs and eligible strong hybrids, along with higher volume derogation factors for battery-led technologies.
Nayak also welcomed provisions allowing manufacturers to pool and trade compliance credits, saying the mechanism can provide flexibility while creating an economic incentive for investment in cleaner technologies.
JSW Motors specifically highlighted the 3.0 factor for BEVs and REEVs and the 2.5 factor for PHEVs and eligible strong hybrids. Nayak said continued policy support, technological innovation and collaboration between government and industry will be important as India works towards its long-term net-zero emissions objective.
Som Kapoor, Partner, Automotive, EY-Parthenon
Som Kapoor said the CAFE III framework establishes a roadmap for improving fuel efficiency across India’s passenger-vehicle industry between FY2027-28 and FY2031-32.
He highlighted the introduction of annual fuel-consumption targets, technology-neutral compliance pathways and greater flexibility through super credits for electrified vehicles, alternative-fuel recognition, technology derogations, credit trading and compliance buyouts.
Kapoor also noted that the reference weight used for target calculations has been revised to 1,229 kg, reflecting the increasing share of larger and heavier vehicles in India’s passenger-vehicle market.
Pratik Shah, Partner, Automotive, EY-Parthenon
Pratik Shah highlighted the introduction of Carbon Neutrality Factors (CNFs), which provide compliance benefits for vehicles using ethanol-blended fuels, flex-fuel ethanol, CNG, CBG blends and biofuel-blended diesel.
He also noted that the framework recognises different new-energy vehicle categories through volume derogation factors, including BEVs, PHEVs, strong hybrid electric vehicles (SHEVs), hybrid electric vehicles (HEVs) and flex-fuel vehicles.
The regulations also recognise 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
Aneesh Ajayan said the regulations are expected to influence product development and portfolio planning across OEMs over the next five years.
He expects manufacturers to increase the use of fuel-efficiency technologies in conventional ICE vehicles while expanding hybrid, flex-fuel and electric vehicle offerings to improve fleet-average compliance.
For manufacturers with predominantly ICE-based portfolios, Ajayan said electrified and alternative-fuel powertrains will assume greater strategic importance. He added that CAFE III combines tighter efficiency standards with compliance flexibility and could encourage the adoption of advanced technologies and lower-carbon powertrains while supporting energy security and reducing fuel consumption.
Shenu Agarwal, President, Society of Indian Automobile Manufacturers (SIAM)
Shenu Agarwal said the automobile industry welcomes the CAFE III notification for passenger vehicles from April 1, 2027.
He said the regulation provides a structured roadmap with annual targets for the next five years and introduces a market-based compliance mechanism. According to Agarwal, the framework is expected to reduce the overall fuel consumption of new passenger-vehicle fleets while allowing manufacturers to pursue different technology pathways.
He added that the predictability offered by CAFE III will help automakers plan investments and accelerate innovation, contributing to India’s longer-term development objectives.
SIAM also appreciated the government’s consultative approach and its assessment of multiple clean-technology options while framing the regulation.
Deepak Ballani, Director General, ISMA
Deepak Ballani welcomed the CAFE III notification, saying it strengthens the policy ecosystem for cleaner and more energy-secure mobility.
He highlighted the recognition of ethanol-based mobility through an 8% Carbon Neutrality Factor for E20-E30 vehicles and a 22.3% factor for flex-fuel ethanol vehicles, alongside Volume Derogation Factors of 1.1 for FFVs and 2.5 for FFV hybrids.
Ballani noted that E20 blending has been achieved, while E85 infrastructure is being rolled out and commercially available FFVs are entering the market. He said CAFE III could provide further momentum to India’s ethanol ecosystem by creating additional avenues for utilising domestic ethanol capacity.
C.K. Jain, President, Grain Ethanol Manufacturers Association (GEMA)
C.K. Jain said CAFE III comes at an important stage in India’s mobility transition, with the country having established the scale of its ethanol-blending programme through E20.
He said the next step is to ensure that the vehicle ecosystem evolves alongside the fuel ecosystem. The recognition of E20 and higher ethanol blends, flex-fuel vehicles, hybrids, CNG and efficiency technologies provides manufacturers with multiple pathways to improve fleet efficiency.
Jain highlighted the 22.3% Carbon Neutrality Factor for flex-fuel ethanol vehicles, saying it could encourage further investment and innovation.
He added that the framework could create opportunities to diversify ethanol feedstocks and develop advanced biofuels, while encouraging closer coordination between automakers, fuel retailers and the biofuel industry.
According to Jain, CAFE III provides a framework for moving beyond the E20 blending milestone towards a broader ethanol-based mobility ecosystem.
