Key facts
- India proposed stricter fuel efficiency regulations for passenger vehicles under CAFE-III norms, effective April 1, 2027.
- The new rules aim to reduce vehicular emissions and decrease reliance on imported crude oil.
- Fuel consumption targets for M1 category vehicles will decrease from 3.996 liters/100 km in 2027-28 to 3.327 liters/100 km by 2031-32.
- Carbon emission targets will tighten from 113 g/km to 76 g/km by 2032, with penalties for non-compliance.
- The policy introduces regulatory benefits for alternative fuel vehicles and a credit trading system for manufacturers.
- Increased manufacturing costs due to stricter mandates may lead to higher vehicle prices.
The Indian government has proposed stricter fuel efficiency regulations for passenger vehicles, known as CAFE-III norms, which are slated to take effect on April 1, 2027. These new standards aim to reduce vehicular emissions, lessen the country's dependence on imported crude oil, and curb its growing oil import bill.
The framework will shift from the Modified Indian Driving Cycle (MIDC) to the World Light Duty Vehicle Testing Procedure (WLTP) to more accurately reflect real-world emissions. For M1 category passenger vehicles (weighing up to 3,500 kg), fuel consumption targets will be tightened from 3.996 liters/100 km in 2027–28 to 3.327 liters/100 km by 2031–32. Carbon emission targets will also be reduced from 113 g/km to 76 g/km by 2032.
Manufacturers failing to meet these targets will face penalties ranging from ₹2,500 to ₹4,500 per gram of excess CO2/km. Conversely, automakers that exceed their fleet-wide targets will earn compliance credits that can be traded in a market system. For the first time, the policy will offer regulatory benefits to vehicles powered by alternative fuels, such as flex-fuel, ethanol, or biofuels, rewarding lower lifecycle carbon emissions. This initiative aligns with the government's broader push for 100% ethanol (E100) vehicles.
Consumers are expected to benefit from a wider selection of hybrid, electric, and alternative fuel models, with automakers planning to introduce over 15 new EV models, expanding the market options to more than 35. However, the implementation of these more stringent technology mandates is anticipated to increase vehicle manufacturing costs, potentially leading to higher upfront prices for consumers.