India has notified the third phase of its Corporate Average Fuel Economy (CAFE III) norms, which will apply to passenger vehicles from April 1, 2027, to March 31, 2032. The objective is straightforward: reduce fuel consumption, lower oil imports and cut carbon emissions from the country’s rapidly growing vehicle fleet.
That is what CAFE III is designed to push carmakers towards; but it does not guarantee dramatically higher mileage from every new car.
From April 1, manufacturers must meet progressively tougher average fuel-efficiency targets across the cars they sell. The benchmark starts at 3.996 litres/100 km in 2027-28 and tightens to 3.3273 litres by 2031-32, a 16.7 per cent improvement over five years. Put simply, that is equivalent to roughly 25 km/litre initially and 30 km/litre by 2031-32.
Think of CAFE as a fuel-efficiency and emissions exam for carmakers. Instead of every car having to score the same marks, the manufacturer gets one report card based on the average performance of its fleet. CAFE III runs from April 1, 2027, to March 31, 2032 and replaces the current CAFE II regime.
Three big things. The special relaxation proposed for small cars has been replaced by a flatter weight formula; the proposed 4x EV multiplier becomes 3x, while benefits spread to hybrids, range-extenders, and alternative fuels; and manufacturers get more time and more ways to make up compliance shortfalls.
What is the big change for small cars? The September 2025 draft gave cars below 909 kg a special relaxation of 3 g CO₂/km. That concession is gone. Instead, the final formula changes the slope used to calculate targets.
Under the earlier proposal, its target would have been 54.1 g/km after the relaxation. Under the final formula, it becomes 63.7 g/km, nearly 18 per cent more headroom. The flatter curve provides relatively softer targets for lighter vehicles and demands greater efficiency from heavier vehicles.
That can help small car-heavy portfolios such as Maruti Suzuki, Renault, and Nissan, while heavier SUV fleets have more efficiency improvement to find.
EVs remain powerful compliance tools, but their relative advantage has narrowed. The earlier proposal contemplated a 4x multiplier for BEVs; the final framework gives them 3x while extending benefits to other technologies. So selling 10,000 BEVs effectively counts as 30,000 in the CAFE calculation. REEVs also get 3x; plug-in hybrids and flex-fuel strong hybrids 2.5x, strong hybrids 1.6x and flex-fuel vehicles 1.1x.
“The multiplier is earned by label, not by capability,” said Randheer Singh, former Director, Electric Mobility at NITI Aayog, and Founder of ForeSee Consulting. He argued that the multipliers are not explicitly graduated by battery capacity, electric range or actual electric-driving capability.
They now provide additional compliance routes. The framework recognises ethanol-blended petrol, biofuels and CBG through Carbon Neutrality Factors, while the number of recognised fuel-conservation technologies expands from four to 12.
“The headline stringency is real, but the flexibilities stack up,” said Amit Bhatt, India Managing Director, International Council on Clean Transportation, pointing to the combined effect of super credits, fuel benefits and technology credits.
There is more time to recover. Instead of annual penalty calculations, CAFE III creates two compliance blocks — three years and two years — allowing a deficit in one year to be offset by surplus performance within the block.
Better-performing OEMs can also trade credits with those falling short, while the framework provides for BEE credit purchases at ₹2,500-4,500 per g/km.
For the buyer, the bottom line is simple: CAFE III does not promise 30 km/l from every car. It pushes the entire new-car fleet towards better fuel efficiency while giving manufacturers several different ways to get there.
Published on September 30, 2026
