The Centre notified the CAFE-3 norms on September 29, ending long debates between small and big car makers. These rules start from April 1, 2027, and stay until March 31, 2032. The new framework gives benefits to all alternate-fuelled vehicles, not just EVs, while setting balanced fuel efficiency targets.
After much debate and deliberation since April 2024, the Centre has notified the third phase of Corporate Average Fuel Economy (CAFE-3) norms that ends the debate of small versus big cars or electric vehicles (EVs) versus non-electric vehicles.
The auto industry was divided between two groups - one led by Maruti Suzuki India for some special consideration for small cars, and the other led by Tata Motors which pitched for benefits for EVs and bigger cars.
The first draft was shared with the auto industry in April 2024. It was then put on public notice in June 2024, and an amended draft was put up for discussions in September 2025, which was highly debated for favouring small cars and stringent norms for bigger, gas-guzzling vehicles. The government then came out with certain changes in April this year and a final draft was notified with no changes in July 2026.
The final notification dated September 29 has three major highlights - the small car slope has been flattened so that no debate remains between small cars and big cars; there is benefit to all alternate-fuelled vehicles and not only EVs; and the overall target at the end of the year is accommodative.
The revised target line has been flattened to provide a more balanced, weight-sensitive approach, with relatively softer targets for lighter vehicles and greater fuel efficiency requirements for heavier vehicles.
The reference weight has been increased from 1,082 kg under existing norms to 1,229 kg under the new CAFE norms, an increase of around 13.6 per cent, reflecting the evolving characteristics of the PV fleet. This means there is no special relaxation for small cars.
Keeping in mind that EVs also have some residual value at the end of their lifecycle, which has environmental impact, the final notification has increased volume derogation factors or 'super credits' for EVs from zero emission vehicle (ZEV) to 4x now. Similarly, all other alternate-fuelled vehicles like Range-Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs) and Flex-Fuel Vehicles will receive volume derogation factors in fleet-average calculations.
The CAFE-3 norms will come into effect from April 1, 2027 and remain applicable for five years up to March 31, 2032. The new norms will apply to new passenger vehicles (PVs) manufactured or imported for sale in India.
The new CAFE framework will drive progressive improvements in fuel economy through year-on-year (y-o-y) tightening of targets across all five years. The fuel-consumption benchmark is tightened from 3.996 litres/100 km in 2027-28 to 3.3273 litres/100 km in 2031-32, representing an improvement of around 16.7 per cent over the period.
The framework recognises the contribution of renewable and low-carbon fuels, including ethanol-blended petrol, biofuels and compressed bio-gas (CBG), through the introduction of the Carbon Neutrality Factor (CNF).
"This provides manufacturers with an additional pathway for improving their fleet-level CAFE performance, alongside vehicle efficiency improvements and electrification. The provision supports India's broader transition towards cleaner fuels while encouraging innovation across multiple technology pathways," the Ministry of Power (MoP) said.
The list of recognised fuel-conservation technologies has also been significantly expanded from four to 12 technologies in the final notification.
"This provides manufacturers with greater flexibility to adopt and receive recognition for approved fuel-saving technologies. A concession of 1 g CO₂/km for each eligible technology, subject to a maximum of 9.0 g CO₂/km, is available under the framework," the MoP said.
As mentioned in the last draft for carbon credits, the MoP has kept it unchanged, under which an individual manufacturer can exchange or trade carbon credits with other manufacturers for the purpose of compliance on their mutually agreed terms and conditions.
According to this, OEMs will be permitted to offset any debit balance accumulated in their respective passbooks through the buyout of credits from the Bureau of Energy Efficiency (BEE). The prices of such credits are fixed at ₹2,500 for FY2027-28; ₹3,000 for FY2028-29; ₹3,500 for FY2029-30; ₹4,000 for FY2030-31; and ₹4,500 for FY2031-32.
According to Vijendra Singh, President, All India Distillers' Association (AIDA), the recognition of ethanol and flex-fuel vehicles through a 22.3 per cent CNF and 1.1x super-credit provides greater policy visibility to biofuels and gives automakers a clearer framework to plan for flex-fuel technologies.
"For the ethanol industry, this creates an enabling framework for the next phase of growth, while giving automakers greater clarity to plan and invest in flex-fuel technologies. The focus now should be on building the wider FFV ecosystem, including vehicle availability, fuel infrastructure and consumer awareness, so that the potential of India's ethanol capacity can translate into greater clean mobility adoption. CAFE-III is not just an auto-sector regulation; it creates a formal policy bridge between India's expanding ethanol ecosystem and the future of clean mobility," he added.