The government has notified new CAFE-3 norms for automakers in India, setting stricter fuel economy and CO2 emission rules for passenger vehicles. The Ministry of Power issued the final notification late on Tuesday, September 29, 2026, after more than two years of drafts, industry consultations, and disagreements among carmakers.

The new rules will apply from April 2027 and remain in force until March 2032.

Quick Facts

Detail	Information
Policy Name	Corporate Average Fuel Economy (CAFE-3) Norms
Notified By	Ministry of Power
Notification Date	September 29, 2026 (night)
Effective From	April 2027
Valid Until	March 2032
Applies To	Passenger vehicles (up to 9 seats, GVW up to 3,500 kg)
Previous Phase	CAFE-II (effective since 2022)
Key Change	New CO2 emissions formula; no separate small-car concession

What Are CAFE Norms?

CAFE norms are fuel-efficiency rules that apply to an automaker’s entire vehicle lineup, not just one model. Instead of checking each car separately, the government looks at a manufacturer’s whole fleet and sets a target for average fuel consumption and CO2 emissions.

This approach pushes companies to sell a healthier mix of fuel-efficient, hybrid, and electric vehicles, rather than relying only on larger, less efficient models.

Why the Small-Car Concession Was Dropped

An earlier draft, released in September 2025, had proposed a special concession for small petrol cars. Vehicles weighing up to 909 kg would have received a 3 grams per km deduction from their CO2 emissions figure while calculating a manufacturer’s overall CAFE performance.

This proposal was strongly supported by Maruti Suzuki India, the country’s largest carmaker and its leading small-car seller. However, several other manufacturers — including Tata Motors and JSW MG Motor — opposed the idea. They argued it would unfairly favour certain automakers over others, especially those with larger EV portfolios.

In the final CAFE-3 notification, this separate concession has been removed entirely.

The New Emissions Formula

Instead of a small-car carve-out, the government revised the formula used to calculate each manufacturer’s fleet-wide CO2 emissions target. Two major changes stand out:

• Reference vehicle weight increased — from 1,170 kg (as proposed in the September 2025 draft) to 1,229 kg in the final rules
• Lower annual weight adjustment — a smaller yearly correction factor compared to the earlier draft

Real-World Impact of the Formula Change

Vehicle Weight	Target Under Earlier Formula	Target Under Final Formula
2,500 kg	~151.4 grams CO2/km	~142.4 grams CO2/km

This shows that heavier vehicles now face a somewhat stricter emissions target compared to the earlier draft proposal.

Incentives for Cleaner Vehicles

The final CAFE-3 rules keep strong incentives in place for electric and hybrid vehicles through a “super-credit” system. Under this system, cleaner vehicles count as more than one unit when a manufacturer’s fleet average is calculated:

Vehicle Type	Credit Multiplier
Battery Electric Vehicle (BEV)	3x
Range-Extended Electric Vehicle	3x
Plug-in Hybrid / Strong Hybrid (Flex-Fuel)	2.5x
Strong Hybrid	1.6x
Flex-Fuel Vehicle	1.1x

This means a single battery electric vehicle sold by a manufacturer is treated as equal to three vehicles when calculating that company’s average fleet emissions — a strong incentive to keep expanding EV sales.

New Credit-Debit System

CAFE-3 also introduces a credit-debit mechanism for manufacturers:

• Manufacturers that beat their emissions targets will earn credits
• Manufacturers that fall short of their targets will accumulate debits

This system is designed to reward companies that move faster toward cleaner vehicle fleets, while still giving others room to catch up over time.

How CAFE Norms Have Evolved in India

Phase	Effective From	CO2 Emission Cap
CAFE-I	2017	130 grams CO2/km
CAFE-II	2022	113 grams CO2/km
CAFE-III	April 2027	Formula-based (varies by vehicle weight)

India’s long-term goal with these tightening standards is to move closer to European emission benchmarks, which currently stand at around 95 grams of CO2 per km.

Why These Norms Matter

Reason	Impact
Lower emissions	Helps India cut vehicular CO2 output over time
Reduced oil import dependence	Better fuel efficiency means less imported crude oil is needed
Boost for EVs and hybrids	Super-credit system rewards automakers for selling cleaner vehicles
Fairer competition	Removing the small-car carve-out avoids giving one segment an unfair advantage
Climate commitments	Supports India’s broader climate and emission-reduction goals

Frequently Asked Questions