India Notifies CAFE-III Norms: Stricter Fuel Efficiency Rules to Take Effect from April 2027
India has officially notified the CAFE-III (Corporate Average Fuel Economy) norms on 29 September 2026. They will apply from 1 April 2027 to 31 March 2032 to M1-category passenger vehicles manufactured or imported for sale in India.
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The biggest change is that every manufacturer must progressively improve the average fuel efficiency of its entire fleet, rather than every individual car having to meet one fixed mileage figure. The benchmark tightens from 3.996 L/100 km in FY2027-28 to 3.3273 L/100 km in FY2031-32, roughly a 16.7% improvement over the five-year CAFE-III period.
A particularly important decision is that small cars do not receive a special relaxation. An earlier proposal considered a 3 g/km concession for petrol cars weighing up to 909 kg, but this has been removed from the final rules. Because the formula is weight-based, manufacturers with predominantly lighter cars actually receive a lower CO₂ target than manufacturers selling heavier vehicles.
CAFE-III also strongly encourages electrified and alternative-fuel vehicles through “super credits” or volume factors. For fleet calculations, a battery EV or range-extended EV counts as 3 vehicles, a plug-in hybrid or flex-fuel strong hybrid as 2.5, a strong hybrid as 1.6, and a flex-fuel ethanol vehicle as 1.1. This makes such vehicles disproportionately useful to a manufacturer trying to lower its corporate fleet average.
The new rules also recognise renewable-fuel benefits. E20-compatible petrol vehicles receive an 8% carbon-neutrality adjustment, while flex-fuel ethanol vehicles receive a 22.3% adjustment. CNG vehicles receive at least a 5% adjustment, with provisions linked to compressed-biogas blending, while diesel vehicles can receive benefits corresponding to the notified biofuel blend.
Manufacturers can additionally claim efficiency credits for technologies such as start-stop systems, regenerative braking, 6-speed or higher transmissions, TPMS, mild-hybrid systems, LED lighting, efficient air-conditioning, electric water pumps and other approved technologies. The maximum benefit is 9 g CO₂/km, with generally up to 1 g/km per eligible technology.
Compliance becomes financially significant as well. Companies that outperform their target can generate credits, while those falling short can trade credits with other manufacturers or purchase compliance credits from BEE. The notified BEE price rises from ₹2,500 per g CO₂/km in 2027-28 to ₹4,500 by 2031-32.
One important technical transition is also coming: manufacturers will have to declare emissions under both the existing test procedure and WLTP, with the government separately notifying the conversion mechanism. WLTP is intended to provide a more representative measurement of vehicle efficiency than the older Indian driving cycle.
For the Indian car market, the practical effect is likely to be greater manufacturer emphasis on EVs, strong hybrids, E20/flex-fuel cars, CNG and efficiency technologies. However, CAFE-III does not ban petrol or diesel cars, nor does it impose a specific mileage requirement on an individual customer’s car. it regulates the manufacturer’s overall sales fleet.
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