New Corporate Average Fuel Economy (CAFE) norms notified

Corporate Average Fuel Economy (CAFE) Norms from 2027-28 to 2031-32: A Future-Ready and Flexible Framework for India's Automotive Sector

The new CAFE Norms notified by the government will apply to passenger vehicles for the period from 1 April 2027 to 31 March 2032. They will replace the existing CAFE norms with effect from 1 April 2027 and will apply to new passenger vehicles manufactured or imported for sale in India. The new framework provides greater regulatory clarity and a stable policy framework for the automobile industry, while facilitating technological innovation and supporting the continued evolution of India’s passenger vehicle sector towards greater energy efficiency and lower fuel consumption.

CAFE framework marks an important milestone in India’s transition towards cleaner, more energy-efficient and sustainable mobility. The new CAFE Norms have been finalised following extensive consultations with automobile manufacturers, industry associations, academia and other stakeholders, with the objective of providing a future-ready, technology-neutral and flexible regulatory framework for the passenger vehicle sector.

The CAFE framework builds on the gains achieved under the existing regime while providing greater technology choice, flexibility and regulatory certainty to the automotive industry. The framework seeks to drive continuous improvements in fuel efficiency while enabling greater adoption of cleaner technologies, alternative fuels and innovative solutions, thereby supporting India’s energy security and sustainability objectives. The framework is aligned with the broader vision articulated by Prime Minister Narendra Modi for clean, energy-efficient and sustainable mobility as an important pillar of India’s development and energy security.

Key Features of the new CAFE Norms

1. The overall fleet-average target has been progressively strengthened compared with the existing targets, while simultaneously providing manufacturers with a range of incentives and compliance pathways to encourage the adoption of clean fuels, cleaner technologies and more efficient vehicles. The framework therefore combines higher ambition with greater flexibility for industry to determine the most appropriate technology pathways.

2. The framework recognises the contribution of renewable and low-carbon fuels, including ethanol-blended petrol, biofuels and CBG, through the introduction of the Carbon Neutrality Factor (CNF). This provides manufacturers with an additional pathway for improving their fleet-level CAFÉ performance, alongside vehicle efficiency improvements and electrification. The provision supports India's broader transition towards cleaner fuels while encouraging innovation across multiple technology pathways.

3. The list of recognised fuel-conservation technologies has been significantly expanded from four to twelve technologies. This provides manufacturers with greater flexibility to adopt and receive recognition for approved fuel-saving technologies. A concession of 1 g CO2/km for each eligible technology, subject to a maximum of 9.0 g CO2/km, is available under the framework.

4. Battery Electric Vehicles (BEVs), Range-Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEV) and Flex-Fuel Vehicles will receive volume derogation factors, also known as ‘super credits’, in fleet-average calculations. This provides an additional incentive for manufacturers to accelerate the deployment and market penetration of cleaner and advanced vehicle technologies.

5. To facilitate ease of compliance and provide manufacturers with greater operational flexibility, manufacturers may opt to meet their obligations over specified two-year/three-year compliance blocks, as provided under the framework. This allows manufacturers greater flexibility in managing their technology transition and product portfolios over the compliance period.

6. The framework provides greater flexibility to manufacturers in meeting their CAFE obligations. Manufacturers that perform better than their prescribed targets will generate credits, which may be carried forward within the specified compliance blocks. Manufacturers with a compliance gap may utilise eligible carry-forward provisions, enter into exchange/trade of credits with other manufacturers, or purchase credits through the buyout mechanism administered by the Bureau of Energy Efficiency. These provisions are intended to ease the compliance burden, provide flexibility during the transition and enable manufacturers to manage variations in their product portfolio and technology adoption pathways.

7. Reporting will be undertaken under both the Modified Indian Driving Cycle (MIDC) and the Worldwide Harmonized Light Vehicles Test Procedure (WLTP). This dual approach will facilitate India's gradual transition towards globally harmonised vehicle testing practices.

8. Manufacturers with annual sales of below 1,000 units will remain exempt from fleet-average obligations, thereby avoiding the regulatory burden for low-volume manufacturers.

REACTIONS FROM INDUSTRY LEADERS

SHENU AGARWAL, PRESIDENT, SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS (SIAM): “Automobile industry appreciates and welcomes the release of CAFÉ III Notification for Passenger Vehicles by Government of India from 1st April 2027 onwards. CAFÉ III regulation lays down a structured roadmap with aggressive annual targets for next 5-years for the Auto industry along with a market-based compliance mechanism. This will not only ensure reduction of overall fuel consumption from new Passenger Vehicle fleet but also provide an opportunity to the industry to work on various technology pathways providing multiple choices to the consumers.

The CAFÉ III regulation framework provides clear predictability which will enable the Auto industry to plan investments and accelerate innovation, thereby,  playing an important role in the country’s journey towards Viksit Bharat in 2047.

We are thankful to Government of India for detailed and transparent consultative approach in framing this critical and forward-looking regulation after undertaking an objective and balanced assessment of various clean technology options.”

SHAILESH CHANDRA, MD & CEO, TATA MOTORS PASSENGER VEHICLES: “The CAFE III framework is an important step in advancing India’s journey towards cleaner and more sustainable mobility. We welcome the Government’s consultative approach in developing a framework that combines ambitious fuel efficiency targets with market-based compliance mechanisms. Importantly, the continued recognition of zero-emission technologies reinforces the critical role of electrification in achieving India’s long-term decarbonisation objectives. The clarity and predictability provided by the framework will enable the industry to plan investments, accelerate innovation and offer customers an increasingly compelling range of cleaner mobility solutions. At Tata Motors, we remain committed to leading this transition through sustained investments in electric mobility and other technologies that can meaningfully reduce emissions.”

RANJAN NAYAK, CEO, JSW MOTORS: “The much-awaited Corporate Average Fuel Efficiency (CAFÉ) norms introduce a progressive and forward-looking framework that recognises India’s mobility transition towards greener and cleaner technologies, something required to reduce the dependence on imported fossil fuels that place a significant burden on the country’s foreign exchange resources.

The CAFÉ 3 norms, which have been notified by the government, recognise that the road to electrification will be a multi-powertrain journey, with batteries acting as the bedrock of this green transition. The government’s decision to support a range of clean and increasingly efficient technologies - including battery electric vehicles (BEVs), range-extended electric vehicles (REEVs) and plug-in hybrid electric vehicles (PHEVs) - will help accelerate fuel efficiency, drive technology adoption and increasingly de-carbonise passenger vehicles in the country.

JSW Motors particularly welcomes the higher volume derogation factor of 3.0 for BEVs and REEVs, followed by 2.5 for PHEVs/eligible strong hybrids. This appropriately recognises the greater contribution of battery-led technologies while allowing other electrified powertrains to play a role in the transition. Equally encouraging is the provision for pooling and trading of compliance credits. Creating a mechanism through which manufacturers can exchange credits provides flexibility in meeting the CAFE targets, while creating an economic incentive for companies that invest in cleaner and more efficient green technologies.

India has set itself an ambitious vision of achieving net-zero emissions by 2070. As Prime Minister Narendra Modi has articulated, this is a long-term national journey that will require sustained technological innovation and collective action. A policy framework that encourages cleaner, more efficient and increasingly electrified mobility is an important step towards that zero-carbon ambition. JSW Motors and the auto industry look forward to working closely with the government to make this transition faster, deeper and more sustainable.”

VIKRAM GULATI, COUNTRY HEAD & EXECUTIVE VP, TOYOTA KIRLOSKAR MOTOR: "We congratulate the Government of India for bringing out a progressive and forward-looking CAFE 3 regulation that reflects the nation's aspiration to advance sustainable mobility. The CAFE 3 regulation takes due cognisance of the importance of various clean technologies using an objective and scientific based assessment methodology to arrive at a regulation that is best suited for our national interests.  Therefore, Aligning to multi pathway approach ,battery electric vehicles (BEVs), Range Extenders (REEV), Plug-in Hybrid Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs) and Flex Fuel Vehicles (FFVs), including Flex Fuel Strong Hybrid Vehicles (FFV-SHEV) have all been fairly recognised. This will enable the country to rapidly reduce its dependence on imported fossil fuels by leveraging the benefits of high levels of energy efficiency provided by Hybrid vehicles and substituting fossil fuels with electricity using BEVs/PHEVs/REEVs as well as with indigenous and green biofuels like ethanol, that also provide higher income opportunities to our farmers, by using FFV & FFV-SHEV.

We would also like to thank the Government for following a deep & transparent consultation process with all stakeholders in formulating this regulation that allowed all points of view to be objectively evaluated and incorporated in the final regulation.

This regulation is a big step forward and will play an important role in India’s march towards realising its goal of energy independence by 2047 as well as carbon net-neutral by 2070"

RAJAT MAHAJAN, PARTNER AND AUTO SECTOR LEADER, DELOITTE INDIA: “The CAFE 3 norms prioritize the role of transportation in tacking air pollution, and give the industry a clear direction for the next five years. The targets get tighter every year, more so for the heavy vehicles under the final draft version, but manufacturers can reap benefits by transitioning to electric, hybrid, alternative-fuel and fuel-saving technologies. Adhering the norms will require careful product planning and substantial investment in new age technologies. These norms are going to accelerate India’s NEV transition. OEMs who may not be able to switch their larger portfolio fast enough, may end up trading credits within the 2 compliance blocks to avoid penalties.”