New Delhi, India | July 16, 2026
CAFE III Fuel Efficiency Norms have been officially released in draft form by India’s Ministry of Power for public consultation, proposing significantly stricter fuel efficiency and emission standards for passenger vehicles manufactured or imported between the 2027-28 and 2031-32 financial years.
The proposed framework aims to improve vehicle fuel economy, reduce greenhouse gas emissions, and help India achieve its long-term climate and energy efficiency goals. Stakeholders, including automakers and the general public, have been invited to submit comments before the final regulations are issued.
Who Will Be Covered Under the New Rules?
According to the Ministry of Power, the proposed CAFE III Fuel Efficiency Norms will apply to M1 category passenger vehicles, which include:
- Hatchbacks
- Sedans
- SUVs
- Other passenger vehicles carrying up to eight passengers in addition to the driver
Commercial freight vehicles, buses, and other transport categories are excluded from these regulations.
The draft rules will replace the current CAFE II standards, which are expected to expire on March 31, 2027.
Two-Phase Compliance Structure
The proposed framework introduces a two-stage compliance mechanism:
- Phase One: First three years (FY 2027-28 to FY 2029-30)
- Phase Two: Final two years (FY 2030-31 to FY 2031-32)
Fuel efficiency requirements will become progressively stricter each year, encouraging manufacturers to continuously improve vehicle performance and reduce emissions.
Objective: Lower Fleet-Wide Emissions
Prepared under the supervision of the Bureau of Energy Efficiency (BEE), the draft regulations are designed to significantly reduce the average carbon emissions generated by India’s passenger vehicle fleet by FY 2032.
The government believes higher fuel efficiency standards will:
- Reduce fossil fuel consumption
- Improve energy security
- Lower carbon dioxide emissions
- Encourage cleaner automotive technologies
- Support India’s climate commitments
Compliance Credit System Introduced
One of the key features of the draft is a new compliance credit mechanism.
Under the proposal:
- Compliance credits will be valued at ₹2,500 per credit initially.
- The credit value will increase by ₹500 every year.
- Unused credits will automatically expire after the compliance period.
- Manufacturers failing to meet prescribed standards may face financial penalties, although the exact penalty structure has not yet been announced.
This system is intended to reward manufacturers that exceed fuel efficiency targets while discouraging non-compliance.
Small Manufacturers Exempt
The draft also provides relief for smaller automobile companies.
Manufacturers selling fewer than 1,000 vehicles annually will be exempt from the proposed CAFE III regulations, reducing the compliance burden on niche and low-volume manufacturers.
Industry Response Mixed
The proposal has generated varying reactions across the automobile industry.
The Society of Indian Automobile Manufacturers (SIAM) has generally described the draft as a balanced approach that supports environmental objectives while giving manufacturers time to adapt.
However, some automakers have raised concerns regarding:
- The impact on affordable small petrol cars.
- Higher compliance costs.
- The need for separate standards for compact vehicles.
Others have opposed creating different regulations for specific vehicle categories, arguing that a uniform framework would be more effective.
Public Consultation Open Until August 6
The Ministry of Power has invited comments from industry stakeholders, experts, and the general public.
Suggestions can be submitted:
- By email to the Ministry.
- Through official communication addressed to the Under Secretary, Energy Conservation Division, Ministry of Power, New Delhi.
The deadline for submitting comments is August 6, 2026.
The draft will also be published on the official websites of the Ministry of Power and the Bureau of Energy Efficiency.
Why the New Standards Matter
India has been steadily tightening fuel economy regulations to improve vehicle efficiency and reduce greenhouse gas emissions.
The proposed CAFE III Fuel Efficiency Norms represent the next phase of that strategy, encouraging manufacturers to develop cleaner engines, improve fuel economy, expand electrification, and adopt advanced automotive technologies.
With passenger vehicles accounting for a significant share of transportation emissions, the new rules are expected to play a key role in India’s transition toward a cleaner and more sustainable mobility ecosystem.
Key Highlights
- India has released the draft CAFE III Fuel Efficiency Norms for public consultation.
- The rules will apply to M1 category passenger vehicles from FY 2027-28 to FY 2031-32.
- Fuel economy targets will become progressively stricter each year.
- Compliance credits will start at ₹2,500 and increase annually.
- Manufacturers selling fewer than 1,000 vehicles annually will be exempt.
- Public comments can be submitted until August 6, 2026.
