Synopsis

New fuel economy standards for passenger vehicles are proposed by the Ministry of Power. These Corporate Average Fuel Economy-III norms will apply from 2027-28 to 2031-32. Carmakers must meet fleet-wide fuel efficiency targets under the proposed rules. The aim is to improve fuel efficiency and lower vehicle emissions across India.

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Buying a new car in India could become more fuel-efficient from 2027 as the government moves closer to implementing a new set of fuel economy standards for automakers.

The Ministry of Power on Thursday released the draft Corporate Average Fuel Economy (CAFE-III) norms for stakeholder consultation. The proposed regulations will apply to M1 category passenger vehicles manufactured or imported for sale in India during 2027-28 to 2031-32.

The ministry has invited comments from automakers, industry stakeholders and the public until August 6, 2026. The draft will also be uploaded on the websites of the Ministry of Power and the Bureau of Energy Efficiency (BEE).

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CAFE norms prescribe fleet-wide fuel efficiency and carbon dioxide (CO₂) emission targets that automakers must meet across the passenger vehicles they sell. The third phase of the regulations is aimed at improving fuel efficiency and reducing emissions from India's passenger vehicle fleet over the next five years.

Industry had backed draft norms

The draft comes months after automakers broadly endorsed the proposed framework. As reported by ET in April, the Society of Indian Automobile Manufacturers (SIAM) had backed the draft CAFE-III guidelines, with its president, Shailesh Chandra, describing them as "balanced" and aligned with the objective of improving fuel efficiency while reducing vehicle emissions.

People familiar with the discussions had told ET there was broad consensus within the industry on the proposals, with no requests to delay implementation. The norms are slated to take effect from April 1, 2027.

The revised framework is expected to require automakers to progressively improve CO2 emissions across their vehicle fleets every year through 2031-32.

Small cars remain a point of discussion

One of the key debates during consultations centred on how small cars should be treated under the new norms.

People familiar with the discussions told ET that some automakers sought the creation of a separate category for small cars, arguing that lighter, more affordable vehicles should have distinct compliance requirements.

Also Read: Automakers give the green light to CAFE III proposals, norms to come into effect from April 2027

Others, however, maintained that such a category was unnecessary because the draft had already revised the "slope" used to calculate emission targets — effectively relaxing requirements for smaller vehicles while making the standards more stringent for heavier models.

The draft also retains a significant gap in "super credits" awarded to electric vehicles compared with strong hybrid vehicles, indicating the government's continued policy preference for fully electric models under the CAFE framework.