The Centre has notified the third phase of Corporate Average Fuel Economy (CAFE-3) norms for passenger vehicles, introducing stricter fleet-wide fuel-efficiency requirements while retaining incentives for electric and other cleaner vehicle technologies.The new CAFE-3 regulations will apply from April 1, 2027, through March 31, 2032. Battery electric vehicles (BEVs) will receive the highest compliance benefit, with each EV counting as three vehicles when an automaker’s fleet-average fuel efficiency is calculated.Key HighlightsCAFE-3 norms will take effect from April 1, 2027The regulations will remain in force until March 31, 2032Battery EVs will receive a threefold compliance creditNo separate special benefit has been provided for small petrol carsAutomakers will be assessed on fleet-wide fuel efficiencyThe rules aim to reduce fuel consumption and vehicle emissionsCleaner technologies continue to receive compliance incentivesWhat Are CAFE-3 Norms?Corporate Average Fuel Economy norms set fuel-efficiency and emission requirements for an automaker’s overall passenger-vehicle fleet rather than applying the same target to every individual car.The CAFE-3 framework covers M1 category passenger vehicles manufactured or imported for sale in India. Automakers will need to ensure that the average performance of their eligible vehicle fleet stays within the prescribed limits.The new framework is designed to progressively tighten fuel-efficiency requirements through 2031-32, encouraging manufacturers to improve vehicle efficiency and introduce cleaner technologies.EVs Get Strong Compliance BenefitOne of the major features of the CAFE-3 rules is the treatment of battery electric vehicles.Under the notified framework, a battery EV will count as three vehicles while calculating an automaker’s fleet average. This effectively gives manufacturers a significant compliance benefit for increasing their EV sales.The government has retained this incentive as part of its broader approach to encouraging cleaner vehicle technologies. The framework also includes compliance benefits for certain other lower-emission technologies.This means automakers with a higher share of electric vehicles can use those sales to help meet their overall fleet-efficiency requirements.No Special Concession for Small CarsThe final CAFE-3 framework does not retain the proposed special concession for small petrol cars.Instead, the permitted fuel consumption target is linked to the weighted average unladen weight of an automaker’s vehicle fleet. As a result, manufacturers selling different mixes of hatchbacks, sedans and SUVs will face targets based on the overall characteristics of their fleets.The approach marks a shift away from providing a separate compliance advantage based specifically on vehicle size.What CAFE-3 Means for AutomakersThe new norms will require car manufacturers to manage fuel efficiency across their entire portfolios.Automakers that exceed the prescribed efficiency requirements can earn compliance credits, while manufacturers falling short will need to address their compliance position through the mechanisms provided under the regulations. The CAFE-3 framework also provides flexibility through compliance-credit mechanisms.The government has been developing the new framework through consultations with automakers, testing agencies and other stakeholders. The draft CAFE-3 norms were circulated for stakeholder consultation in July 2026 before the final framework was notified.Impact on India's Auto IndustryCAFE-3 is expected to influence product planning and technology investments across India's passenger-vehicle industry.The stronger focus on fleet-wide efficiency, combined with the threefold EV credit, gives manufacturers an additional regulatory incentive to expand electric-vehicle offerings.At the same time, automakers will need to balance investments across EVs, hybrids, fuel-efficiency technologies and conventional powertrains as they prepare for the five-year compliance period beginning in 2027.The new norms are part of India's broader effort to reduce fuel consumption and vehicle-related emissions while supporting the transition towards cleaner mobility
