CAFE-3 Norms Proposal Sent to PMO to Tighten Fuel Efficiency for Passenger Cars

The proposed CAFE-3 norms have been forwarded to the Prime Minister’s Office for approval following stakeholder consultations, according to the Ministry of Power. The framework is designed to tighten fuel efficiency standards and reduce carbon emissions across passenger vehicles. Industry representatives were consulted before the proposal was escalated, although it remains unclear whether revisions were made to earlier drafts, particularly regarding relief provisions for small petrol cars.

Overview of CAFE-3 Norms Framework

The CAFE-3 norms form part of India’s Corporate Average Fuel Efficiency regime, which sets fleet-wide fuel efficiency standards and carbon emissions limits for vehicle manufacturers. Instead of evaluating individual models, compliance is calculated based on the weighted average performance of all passenger vehicles sold by a manufacturer. This approach ensures that overall fleet efficiency improves even if certain high-consumption models remain in production.

Fleet-Based Compliance Mechanism

Under the framework, each automaker must meet a prescribed average target for CO2 emissions across its entire portfolio. The mechanism encourages balanced product planning, pushing manufacturers to integrate advanced powertrain technologies and optimize propulsion systems to remain compliant.

Key Provisions in the Second Draft

The second draft of the CAFE-3 norms, released in September 2025, proposed stricter average CO2 emissions targets effective April 2027. It also included conditional relief for small petrol cars meeting defined size, engine capacity, and weight criteria. Eligible vehicles under four metres in length, with engines up to 1,200 cc and unladen weight up to 909 kg, could claim an additional 3 g CO2 emissions reduction per kilometre, capped at 9 g/km per model for fleet calculations.

Debate Over Small Car Relief

The proposed relaxation for small petrol cars generated divided industry reactions. While manufacturers focused on compact passenger vehicles viewed the provision as supportive, larger SUV-focused automakers criticized the measure as market-distorting. Reports suggest that subsequent revisions may have scaled back portions of this relief, though final details remain subject to approval.

Market and Cost Implications

Stricter CAFE-3 norms are expected to increase compliance costs in certain segments, particularly entry-level petrol passenger vehicles. Automakers may need to deploy additional fuel-saving technologies such as improved engine calibration, lightweight materials, or electrified powertrain solutions to meet updated fuel efficiency standards. These adjustments could raise vehicle prices in cost-sensitive categories.

Acceleration Toward Electrification

Beyond short-term cost pressures, the CAFE-3 norms signal a broader structural transition in India’s automotive landscape. As carbon emissions thresholds tighten, hybrid systems and electric vehicles may become more competitive from a compliance standpoint. The regulatory push could therefore accelerate the shift toward electrified mobility options while reshaping long-term product strategies across the passenger vehicle market.

With the proposal now awaiting final approval, the CAFE-3 norms are poised to redefine fuel efficiency standards and carbon emissions benchmarks for India’s passenger car industry from April 2027 onward.