The Indian automotive landscape is set for a significant transformation with the notification of the Corporate Average Fuel Economy (CAFE-3) norms for passenger vehicles. Set to take effect from April 1, 2027, and remain applicable until March 31, 2032, these regulations aim to enhance fleet-wide fuel efficiency and reduce carbon emissions across the country.
Super-Credits Incentivize Electrification
A cornerstone of the CAFE-3 norms is the introduction of a robust super-credit system designed to accelerate the adoption of electrified vehicles. Battery electric vehicles (EVs) and range-extended electric vehicles (REEVs) will receive a substantial 3x volume factor. Plug-in hybrids (PHEVs) and strong hybrids running on flex-fuel ethanol will benefit from a 2.5x factor, while standard strong hybrids get a 1.6x factor. Flex-fuel vehicles themselves receive a 1.1x factor.
This tiered incentive structure is expected to encourage automakers to expand their offerings in these greener segments, making electrified mobility more accessible to Indian consumers. Additionally, the norms provide carbon-neutrality factors for alternative fuels, including an 8% adjustment for E20 and higher ethanol-blended petrol, 22.3% for flex-fuel ethanol, and 5% for CNG vehicles.
Progressive Efficiency Targets and Technology Credits
The CAFE-3 norms establish annual average fuel-consumption targets for each automaker, calculated based on the weighted average kerb weight of its fleet. These targets will progressively tighten, aiming for a significant 16.7% improvement in fuel consumption between FY2027-28 and FY2031-32. The benchmark will decrease from 3.996 litres per 100 km to 3.3273 litres per 100 km over this period.
Automakers can also claim efficiency benefits for integrating advanced technologies. These include start-stop systems, tyre-pressure monitoring, regenerative braking, six-speed or higher transmissions, efficient alternators, 12V/48V motor-generators, LED lighting, advanced glazing, electric water pumps, efficient air-conditioning, solar-reflective paint, and PWM-controlled radiator fans. Each eligible technology can contribute up to a 1 g CO₂/km reduction, capped at an overall 9 g CO₂/km.
Compliance and Industry Outlook
Under the new framework, an automaker's annual weighted-average actual fuel consumption must meet or surpass its prescribed target. Manufacturers exceeding their targets will generate credits, which can be traded or exchanged with other manufacturers or even purchased from the Bureau of Energy Efficiency. The price of these credits will increase over time, from ₹2,500 per g CO₂/km in FY2028 to ₹4,500 in FY2032.
The norms will operate through two compliance blocks: a three-year block from FY2027-28 to FY2029-30, and a two-year block from FY2030-31 to FY2031-32. Credits and debits can be carried forward within their respective blocks. R. Velusamy, President - Automotive Business, Mahindra & Mahindra, welcomed the norms, stating they strike a pragmatic balance between environmental necessity and industry achievability, reinforcing India's energy security.