CAFE-3 Norms Finalised Without Separate Relief for Small Cars, New Rules From April 2027

India has finalised its next set of fuel-efficiency rules for passenger vehicles, bringing an end to a long-running disagreement within the automobile industry over whether small cars should receive separate relief. 

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The Ministry of Power notified the Corporate Average Fuel Economy-3, or CAFE-3, norms late on Tuesday. The rules will apply from April 2027 to March 2032 and are aimed at bringing down carbon dioxide emissions from passenger vehicles. 

One of the biggest changes in the final rules concerns small cars. An earlier draft released in September 2025 had proposed a special concession for petrol cars weighing up to 909 kg. Under that proposal, 3 grams per kilometre would have been deducted from their carbon dioxide emissions while calculating a manufacturer’s overall performance. 

That provision does not appear in the final notification. 

Maruti Suzuki India, which has a large presence in the small-car market, had sought separate relief for lighter cars. Tata Motors and JSW MG Motor were among the manufacturers that opposed the proposal. The disagreement eventually reached the Prime Minister’s Office. 

Instead of creating a separate category for small cars, the government has changed the formula used to determine emission targets across manufacturers. 

The reference weight has been increased from 1,170 kg in the September 2025 draft to 1,229 kg in the final rules. The weight adjustment has also been changed, with its annual multiplier falling from 0.00158 in FY28 to 0.00131 by FY32. 

The result is relatively softer targets for lighter vehicles and tougher requirements for heavier ones. 

For instance, a 909-kg vehicle would have an emissions target of around 82.8 grams per kilometre in FY28 under the final formula. The September 2025 proposal would have placed that target at roughly 76 grams per kilometre. 

For a much heavier 2,500-kg vehicle, the direction is reversed. Its FY28 target under the final rules works out to about 142.4 grams per kilometre, compared with approximately 151.4 grams under the earlier proposal. 

Electric vehicles retain higher weight in calculations 

The government has also retained additional benefits for cleaner vehicle technologies. 

Under the final framework, every battery electric vehicle sold by a manufacturer will be counted as three vehicles while calculating the company’s fleet performance. Range-extended electric vehicles will receive the same treatment. 

Plug-in hybrids and strong hybrids running on flex-fuel will carry a 2.5-times factor. Strong hybrids will be counted at 1.6 times, while flex-fuel vehicles will receive a 1.1-times factor. The rules define flex-fuel as a blend containing at least 85% ethanol. 

These numbers have changed considerably from the first CAFE-3 draft released in June 2024. That version had proposed a four-times factor for battery electric vehicles, twice for plug-in hybrids, 1.2 times for strong hybrids and five times for hydrogen fuel-cell vehicles. Hydrogen fuel-cell vehicles are no longer included in the final super-credit table. 

Carmakers get more room through credit system 

Another addition to the final framework is a credit and debit mechanism that gives manufacturers some flexibility in meeting their targets. 

A carmaker performing better than its prescribed fleet target will earn credits, while one falling short will accumulate debits. These will be recorded separately for each manufacturer. 

Credits can be carried forward within designated periods. The first period will cover FY28 to FY30, followed by another covering FY31 and FY32. Manufacturers will also be allowed to trade credits among themselves. 

Companies that still have a shortfall will have the option to purchase credits from the Bureau of Energy Efficiency. 

The buyout price will begin at ₹2,500 for every gram of carbon dioxide per kilometre in FY28 and increase by ₹500 annually, reaching ₹4,500 in FY32. Credit trading will take place between October 1 and October 31 each year. 

The final notification follows more than two years of discussions over the shape of India’s next fuel-efficiency regime. The first CAFE-3 draft was released in June 2024, followed by further versions as the government and automobile industry worked through differences over small cars and the treatment of different vehicle technologies. 

With the final rules now notified, manufacturers have until April 2027 before the new framework comes into force.