India has finalised its next passenger-car fuel-efficiency regime. The CAFE-III rules will run from April 1, 2027, to March 31, 2032, covering new M1-category passenger vehicles manufactured or imported for sale in India. The Ministry of Power notified the framework in late September 2026, with its official announcement issued on September 30.
CAFE does not set one CO2 limit for every individual car. It measures the average fuel consumption of an automaker’s eligible fleet. That difference is important for buyers: petrol SUVs are not automatically banned in 2027, but manufacturers will have to balance higher-consumption models with more efficient cars, hybrids, EVs and other qualifying technologies.
Key Highlights
- CAFE-III starts on April 1, 2027, and remains in force for five years.
- The fleet benchmark tightens from 3.996 litres/100 km in 2027-28 to 3.3273 litres/100 km in 2031-32.
- The government says that amounts to about a 16.7% fuel-efficiency improvement.
- Battery EVs and range-extended EVs receive the strongest 3x volume credit.
- The final framework has no separate 3 g/km concession for petrol cars below 909 kg.
How CAFE-III Changes the Target for Car Companies
The number to watch is not a fixed mileage figure printed beside every model. Each manufacturer gets an annual target linked to the weighted average unladen mass of the vehicles it sells.
For 2027-28, the baseline figure is 3.996 litres per 100 km. It falls each year until reaching 3.3273 litres per 100 km in 2031-32. The reference weight has also moved to 1,229 kg from 1,082 kg under the existing regime.
This is where the small-car debate ended up. A 2025 proposal had offered a separate 3 g CO2/km benefit to petrol cars weighing up to 909 kg. The final rules dropped that carve-out. Weight, however, still feeds into the fleet formula, so a hatchback-heavy manufacturer and an SUV-heavy manufacturer do not receive identical targets.
EVs, Hybrids and Fuel-Saving Technology Get Compliance Credits
CAFE-III gives manufacturers several routes to lower their calculated fleet consumption rather than relying on one powertrain.
- Battery EVs and range-extended EVs receive a volume factor of 3.
- Plug-in hybrids and strong hybrids running on flex fuel receive 2.5.
- Strong hybrids get 1.6, while flex-fuel vehicles receive 1.1.
- Eligible fuel-saving technology can earn 1 g CO2/km per technology, capped at 9 g CO2/km.
The Ministry of Power says the recognised technology list has expanded from four items to 12. Examples include solar-reflective paint, advanced glazing and higher-efficiency air-conditioning. Carbon Neutrality Factors also recognise fuels such as ethanol-blended petrol, biofuels and compressed biogas.
What Happens if an Automaker Misses Its CAFE Target?
One weak year does not automatically end compliance. The framework uses compliance blocks and allows better-performing manufacturers to generate credits.
Those credits can be carried within the permitted block, exchanged with another manufacturer or used against a shortfall. A buyout mechanism administered by the Bureau of Energy Efficiency is also available. The Indian Express reports that the buyout price begins at ₹2,500 per g CO2/km in 2027-28 and rises by ₹500 each year to ₹4,500 in 2031-32.
Manufacturers with annual eligible sales below 1,000 units are exempt from the fleet-average obligation, although reporting requirements remain.
What CAFE-III Could Mean for Car Buyers From 2027
The rules regulate manufacturers, not motorists directly. Their effect is more likely to show up in the mix of cars companies develop and sell.
- More EVs and hybrids can improve a manufacturer’s fleet calculation.
- Efficient petrol, CNG and flex-fuel models still have a role under the technology-neutral framework.
- Buyers may see more fuel-saving hardware as manufacturers use approved technology credits.
No Automatic Ban on Petrol or Diesel Cars
CAFE-III should not be read as an April 2027 ban on conventional cars. The requirement sits at fleet level, so companies retain room to sell different powertrains while meeting their overall target.
For the final framework and later implementation clarifications, follow the Bureau of Energy Efficiency CAFE page and the official Ministry of Power announcement rather than older draft figures circulating online.
FAQs
When will CAFE-III rules start in India?
CAFE-III takes effect on April 1, 2027, and will remain applicable through March 31, 2032, covering eligible new passenger vehicles manufactured or imported for sale.
Do CAFE-III rules ban petrol cars from 2027?
No. The rules set fleet-average fuel-consumption requirements for manufacturers. Petrol cars may continue, provided each automaker’s overall eligible fleet meets the prescribed compliance framework.
Will small cars get a special CAFE-III concession?
The final norms do not retain the proposed separate 3 g/km benefit for petrol cars below 909 kg. Vehicle weight still influences each manufacturer’s target.
How do electric cars help manufacturers under CAFE-III?
Battery EVs receive a 3x volume derogation factor in fleet calculations. Their low petrol-equivalent energy consumption also helps manufacturers reduce calculated average fleet fuel use.
Are all car companies covered by CAFE-III?
The rules cover eligible M1 passenger vehicles, but manufacturers selling fewer than 1,000 eligible vehicles annually are exempt from the specific fleet-average target requirement.
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