CAFE 3 norms retain weight-based formula, no small-car relief

The government has notified the third phase of Corporate Average Fuel Economy (CAFE-III) norms without any separate concession for small cars, closing a policy debate in which Maruti Suzuki had pushed for differentiated treatment for smaller and lighter vehicles. The final framework, notified by the Ministry of Power on September 29, will apply to M1-category passenger vehicles from April 1, 2027 to March 31, 2032. It sets progressively tighter annual fuel-consumption standards for carmakers based on the weighted average unladen mass of their vehicle portfolios. The notification does not contain the small-car-specific relaxation that had been discussed during the consultation process. An earlier draft had proposed a 3 gram CO2/km benefit for petrol cars weighing up to 909 kg, with an engine capacity of up to 1,200 cc and length of less than four metres. Maruti Suzuki had lobbied for relaxed treatment for small cars, arguing that the segment was important for affordability and entry-level motorisation. However, the final notification has no such provision. Instead, the government has retained a formula in which the fuel-efficiency target applicable to a manufacturer is determined by the weighted average mass of all its new vehicles. The formula uses a reference weight of 1,229 kg and progressively reduces the permissible fuel consumption from FY28 through FY32. This means a manufacturer with a lighter vehicle portfolio will have a different fleet-average target from one with a heavier portfolio, but there is no additional benefit specifically earmarked for small cars based on their size, engine capacity or body length. The issue had divided the auto industry. Maruti Suzuki had sought differentiated treatment for small cars, while several rivals opposed a special concession. The debate intensified after the September 2025 draft proposed the 3 gram/km benefit for vehicles meeting the 909-kg, 1,200-cc and sub-four-metre criteria. Moneycontrol had reported earlier that the proposal was subsequently removed from the revised framework following objections from sections of the industry. The final notification also provides manufacturers with other avenues to lower their effective compliance burden. Carmakers can claim a fuel-consumption reduction of 1 gram CO2/km for each eligible efficiency technology deployed, subject to an overall cap of 9 gram CO2/km. Technologies listed include start-stop systems, tyre-pressure monitoring, regenerative braking, six-speed or higher transmissions, efficient alternators, micro-hybrid systems, LED lighting, advanced glazing, electric water pumps and more efficient air-conditioning systems. The framework also provides additional volume credits for cleaner powertrains. Battery electric vehicles and range-extended electric vehicles get a volume derogation factor of 3.0, while plug-in hybrids and flex-fuel strong hybrids get 2.5. Strong hybrids get a factor of 1.6 and flex-fuel vehicles 1.1. The rules also recognise the use of ethanol and other alternative fuels through carbon-neutrality factors. Petrol vehicles using E20 or higher ethanol blends, including strong and plug-in hybrids, receive an 8% factor on tailpipe CO2. Flex-fuel vehicles receive a 22.3% factor, while CNG vehicles receive a 5% factor or the notified CBG blending percentage, whichever is higher. For manufacturers that still fall short of their targets, CAFE-III introduces a credit and debit mechanism. Carmakers generating excess compliance credits can carry them forward within the relevant compliance block or trade them with other manufacturers. Manufacturers can also buy credits from the Bureau of Energy Efficiency to offset a debit balance. The price of credits bought from the BEE rises from Rs 2,500 per gram of CO2/km in FY28 to Rs 4,500 in FY32, increasing the financial cost of non-compliance over the five-year period. Importantly, the notification defines a small-volume manufacturer separately. Manufacturers producing or importing fewer than 1,000 eligible vehicles during a reporting period are exempt from meeting the specific CAFE target, although they must continue to report their annual average actual fuel consumption to the BEE. This is a volume-based exemption for manufacturers and not a concession for small cars. The final framework therefore leaves carmakers, including Maruti Suzuki, to meet the same CAFE architecture applicable to the wider M1 passenger-vehicle fleet, with flexibility coming through the weight-based formula, technology credits, cleaner-powertrain super credits, fuel-related carbon-neutrality factors and credit trading rather than through a dedicated small-car relaxation. The norms will be implemented from April 1, 2027 and remain in force until March 31, 2032.