Browse
Log in / Register
Share
New Delhi — May 9, 2026: India’s automobile sector has rallied around the government’s newly notified Corporate Average Fuel Economy (CAFE-III) standards, calling them a clear, long-term roadmap for improving mileage and cutting emissions without locking manufacturers into any single technology.
The rule, which applies to all new passenger vehicles manufactured in or imported into India, will run from April 1, 2027, through March 31, 2032. Industry leaders say the predictability of the framework will support investment planning, encourage innovation, and give customers access to a wider range of fuel-saving options.
The third phase of India’s fuel-efficiency regime was shaped by extensive data analysis and consultation with government ministries, automakers, and other stakeholders. Compared with earlier phases, it introduces a more flexible, market-based compliance structure, with softer efficiency targets for lighter cars and steeper improvement requirements for heavier vehicles.
Society of Indian Automobile Manufacturers (SIAM) President Shenu Agarwal said the regulation provides structured annual targets for the next five years, which will help automakers align capital expenditure with the country’s “Viksit Bharat 2047” development vision. Agarwal noted that the framework lowers total fuel consumption across the new-vehicle fleet and creates space for several technology pathways, giving consumers more choice rather than forcing a one-size-fits-all solution.
Maruti Suzuki India’s Senior Executive Officer for Corporate Affairs, Rahul Bharti, described CAFE as a central policy instrument for India’s decarbonization and energy-security agenda. He highlighted that the new rules were based on scientific calculations and detailed inter-ministerial consultation, while the revised credit/debit system makes them more workable than the previous CAFE-II regime. Bharti also expects the standards to encourage multi-faceted research and development across powertrains and fuels.
Tata Motors Passenger Vehicles Managing Director and CEO Shailesh Chandra said the framework marks an important milestone in the country’s shift toward cleaner mobility. He stressed that continued support for zero-emission technologies confirms the central role of electrification in meeting India’s long-term CO2 reduction goals.
Hyundai Motor India Managing Director and CEO Tarun Garg welcomed the government’s move as a positive step for sustainable mobility. Garg specifically pointed to credit trading, pooling, and flexible compliance mechanisms, which he says give manufacturers greater latitude while promoting innovation and competitiveness.
Mahindra & Mahindra’s President of the Automotive Business, Velusamy R, described the targets as “appropriately ambitious” and achievable through 2031-32. He praised the inclusion of compliance blocks, technology credits, cleaner-fuel benefits, and super credits for electric vehicles and advanced powertrains, calling the package a “pragmatic, forward-looking framework” that benefits the environment and India’s energy security.
Toyota Kirloskar Motor’s Country Head and Executive Vice President, Vikram Gulati, said the CAFE-3 regulation used an objective, scientific assessment to recognize a broad range of clean technologies. He noted that battery-electric vehicles, range extenders, plug-in hybrids, strong hybrids, and flex-fuel vehicles — including flex-fuel strong hybrids — have been fairly recognized in the framework.
Mercedes-Benz India Managing Director and CEO Santosh Iyer described the policy as a step in the right direction, combining ambitious targets with practical compliance flexibility. He added that long-term regulatory certainty would accelerate the adoption of advanced new-energy vehicles and cutting-edge automotive technology in India.
The new rules require more than 16% improvement in fuel efficiency over five years. The fleet-average fuel-consumption benchmark will tighten from 3.996 liters per 100 km in 2027-28 to 3.3273 liters per 100 km in 2031-32 — a shift from roughly 59 U.S. mpg to about 71 U.S. mpg in equivalent terms.
Manufacturers can meet their obligations over two- or three-year compliance blocks. Companies that exceed their prescribed targets will earn credits, which can be carried forward within the same compliance block. Automakers with a compliance shortfall may use eligible carry-forward provisions, exchange or trade credits with other manufacturers, or purchase credits through the buy-out mechanism managed by the Bureau of Energy Efficiency.
The framework also offers volume derogation factors, or super credits, in fleet-average calculations for battery-electric vehicles, range-extended electric vehicles, plug-in hybrids, strong hybrids, and flex-fuel vehicles. These credits are designed to accelerate adoption of cleaner technologies during the first years of the regulation.
The list of recognized fuel-conservation technologies has expanded significantly from four to twelve, giving automakers more options to earn compliance credit. Manufacturers with annual sales of fewer than 1,000 units remain exempt from fleet-average obligations, providing relief for low-volume importers and niche players.
For U.S. readers, India’s CAFE-III program echoes the structure of the American Corporate Average Fuel Economy system — but it is a distinct framework built around Indian driving conditions, fuel mix, and industrial strategy. Both systems rely on market-based credits and increasingly stringent targets, yet India’s version deliberately keeps multiple technology paths open, including hybrids and flex-fuel engines, alongside battery-electric vehicles.
India’s auto industry now faces the task of delivering meaningful efficiency gains while keeping prices competitive. The response from major players suggests that the combination of compliance flexibility and long-term policy visibility will help the sector manage that challenge. If the credit mechanisms work as designed, CAFE-III could accelerate India’s transition to cleaner mobility without destabilizing production or consumer choice.
