Revised CAFE-3 draft tightens norms, may hit small car makers

Stricter Standards Shake Up India's Auto Industry

The Indian government is pushing ahead with a revised draft of the Corporate Average Fuel Efficiency (CAFE-3) norms, set to take effect from 2027, aiming to sharpen the country's fight against vehicle emissions.

These rules require car manufacturers to meet tougher average fuel consumption and CO2 emission targets across their entire fleet of passenger vehicles, rather than judging individual models.

The latest version, still under wraps and not publicly released, scraps previous relaxations for small cars, which could spell trouble for producers of affordable hatchbacks that dominate city streets.

Officials from the Bureau of Energy Efficiency have tweaked the "slope value," a key metric that determines how much extra CO2 allowance heavier vehicles get based on their weight.

By flattening this slope—from 0.002 to as low as 0.00128 over five years—heavier SUVs and larger cars face tighter scrutiny, nudging makers toward electrification and hybrids.

Small Car Makers Face Uphill Battle

Manufacturers specializing in compact, lightweight cars, often under 909 kg, are raising alarms over the loss of derogation benefits that once gave them breathing room on emission targets.

Without this safety net, companies may need to pack entry-level petrol models with pricier tech like advanced engines or hybrid components, potentially hiking sticker prices by up to 10 percent.

This shift could widen the gap between two-wheelers and cars, as budget buyers stick to cheaper bikes amid rising costs for small autos.

Industry insiders point out that the new rules introduce Range-Extended Electric Vehicles (REEVs) with the same favorable treatment as pure EVs, boosting bigger players who already bet big on SUVs and electrified lineups.

The Prime Minister's Office has stepped in to mediate, pulling in ministries from petroleum to heavy industries to hash out a final version amid heated debates.

said a senior automobile executive involved in the talks.

The removal of derogation for small cars means entry-level vehicles will need a 36 percent CO2 cut by the end of the phase, forcing makers to invest heavily or risk penalties, which could kill off affordable hatchbacks vital for India's mass mobility,

Balancing Act Between Environment and Economy

CAFE-3 builds on earlier phases, with this being the third draft in two years, reflecting ongoing tug-of-war between environmental goals and market realities.

Proponents argue the norms align India with global standards like those in Europe and Japan, using the WLTP testing cycle for more realistic efficiency measures.

Credits for selling EVs and hybrids will let compliant firms trade surpluses, possibly driving emissions down to 76 grams per km if electrics hit 11 percent market share by 2032.

Yet, opposition is fierce: small car advocates like those from Maruti and Toyota warn uniform rules ignore India's unique needs for lightweight, safe vehicles suited to congested roads.

Larger firms such as Tata, Mahindra, and Hyundai counter that exemptions create unfair loopholes, compromising safety and fairness.

A middle path seems likely, with some leniency via the flatter slope indirectly aiding lighter fleets, though no blanket protections remain.

Penalties for non-compliance could sting, up to roughly Rs 50,000 per vehicle, pushing the entire sector toward greener tech.

As deliberations drag on—delaying what was once a February deadline—the auto world watches closely.

This revised CAFE-3 draft promises cleaner air through rigorous efficiency mandates but risks pricing out small cars, reshaping India's vehicle landscape toward SUVs, hybrids, and EVs while challenging affordability for everyday drivers.

Key takeaways include the end of small-car derogations, a stricter slope for heavy vehicles, and government intervention to finalize balanced rules amid industry divide.