The Union Ministry of Power notified the third round of Corporate Average Fuel Economy (CAFE-III) norms for passenger vehicles on September 30, 2026. The rules cover new passenger vehicles made or imported for sale in India from April 1, 2027 to March 31, 2032, and aim to cut average fleet fuel consumption by about 16.7% over the five years.
CAFE norms do not set a limit for each car. They set a target for the average of all cars a company sells in a year, so a maker can balance bigger, thirstier models with smaller, electric or hybrid ones.
Key points
- Period: April 1, 2027 to March 31, 2032.
- Target: the fleet benchmark tightens every year, from 3.996 litres per 100 km in 2027-28 to 3.3273 litres per 100 km in 2031-32.
- Reference weight: raised from 1,082 kg under the current rules to 1,229 kg, so targets now depend more on a car's weight.
- Lighter cars: a draft from September 2025 had proposed a separate 3 g/km concession for small petrol cars. The final rules drop that carve-out and instead flatten the weight-based target line, which gives lighter cars relatively easier targets and heavier cars tougher ones.
- Fuel-saving technologies: the list of recognised technologies grows from 4 to 12. Each one earns a concession of 1 g of CO2 per km, up to 9 g/km in total.
Credit for EVs, hybrids, ethanol and CNG
Cleaner vehicles count for more than one unit when a company's fleet average is worked out. These "super credits" are:
| Vehicle type | Multiplier |
|---|---|
| Battery electric and range-extended electric | 3.0 |
| Plug-in hybrid and flex-fuel strong hybrid | 2.5 |
| Strong hybrid | 1.6 |
| Flex-fuel ethanol vehicle | 1.1 |
A new Carbon Neutrality Factor gives a discount on tailpipe CO2 for vehicles that run on renewable or low-carbon fuels:
- E20 or higher ethanol-blended petrol vehicles: 8%
- Flex-fuel ethanol vehicles: 22.3%
- CNG vehicles: 5%, or the notified compressed biogas (CBG) blending share if that is higher
How companies can comply
The five years are split into two compliance blocks: 2027-28 to 2029-30, and 2030-31 to 2031-32. A maker that beats its target earns credits that can be carried forward within a block or traded with another maker. A company that falls short can buy credits under a buyout mechanism run by the Bureau of Energy Efficiency (BEE). The buyout price starts at Rs 2,500 per g CO2/km in 2027-28 and rises by Rs 500 a year to Rs 4,500 in 2031-32.
Firms that make or import fewer than 1,000 vehicles a year are exempt from the fleet target but must still report fuel-consumption data. Testing and certification stay with the Ministry of Road Transport and Highways, while BEE handles the credit framework.
What it means for car buyers
The norms put no new rule on owners of existing cars. Over the next few years, they push makers to sell more electric, hybrid, flex-fuel and CNG models and to fit more fuel-saving technology, especially in heavier vehicles such as SUVs. How this affects prices and model line-ups will depend on each company's plans.
The move sits alongside other energy-transition steps, such as the Rs 1.86 lakh crore Green Energy Corridor Phase III approved by the Cabinet on September 30.
What happens next
The current CAFE-II rules continue until March 31, 2027. CAFE-III targets apply to vehicles sold from April 1, 2027, and the first compliance block ends with 2029-30.
