No detours: CAFE III to kick in by April 2027

Indian carmakers face new fuel efficiency rules from April 2027. The government will enforce CAFE III standards, requiring lower carbon dioxide emissions.

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Indian automakers will have to mandatorily adhere to stricter fuel-efficiency norms from April 1, 2027, with the government deciding to stick to the latest schedule for implementation of Corporate Average Fuel Efficiency (CAFE) III standards, officials said.

The Prime Minister’s Office Wednesday held a meeting to discuss the proposed framework, they said. “CAFE III guidelines will be ready by March-end,” a senior official told ET, emphasising that there won’t be any relaxation in timeline.

Carmakers will face penalties if they fail to meet the lower emission mandate by March 31, which will progressively get tighter. The auto industry had been pressing for the implementation timeline to be deferred.

The government, however, is of the view that industry has been given adequate time to prepare.

As per the draft proposal, carmakers selling higher-emission vehicles will face financial penalties. However, those producing electric vehicles (EVs) and hybrids can offset these penalties through credits earned from selling eco-friendly cars or by purchasing them from other carmakers possessing robust credits.

The government has so far issued two drafts of the proposed CAFE-III—the first in 2024 and the second in September 2025.

The latest iteration, currently under examination, is an updated version of the September draft prepared after stakeholder consultations.

The Bureau of Energy Efficiency (BEE), the nodal agency for firming up the emission norms, has in the latest draft proposed reducing company-wise average emissions to 77.08g carbon dioxide per kilometre (CO2/km) by 2032.

The industry favours a flat emission target of 89.6g CO2/km for the entire CAFE III duration. The September 2025 draft had sought a reduction to 76.01g CO2/km from 92.11g CO2/km.

These targets will be calculated based on projected sales distribution based on International Centre for Automotive Technology (ICAT), and Society of Indian Automobile Manufacturers (SIAM) data.

Sector watchers say the targets in current draft—92.50g dropping to 77.08g—offer a marginal breathing room to automakers compared to the earlier proposal. Carmakers are however worried about the retention of rigorous annual emission tightening, an industry insider said.

Officials said the industry demands are being balanced with stricter fuel efficiency goals for the large carmakers while showing some leniency to the smaller ones. However, a blanket safety net may go away with derogation or extra allowance for small cars being discontinued, they added.