The Indian government is considering delaying the implementation of the third phase of Corporate Average Fuel Efficiency (CAFE-III) norms, which are currently scheduled to come into effect from April 1st, 2027, according to a report by a local daily.

This follows lobbying by sections of the automobile industry, which have stated that the proposed targets are too steep and that the timeline is insufficient for compliance. No official deferral has been announced; however, the possibility is under discussion within government circles, as the notification deadline approaches without a finalised framework in place.

What CAFE norms regulate

Corporate Average Fuel Efficiency norms require each passenger vehicle manufacturer to ensure that the sales-weighted average CO2 emissions of its entire model line-up remain within a prescribed limit.

Unlike vehicle-specific emission standards, the fleet-wide averaging mechanism allows a company to offset a less efficient model with a more efficient one, making overall portfolio composition central to compliance planning. India introduced its first CAFE norms in 2017, followed by CAFE-II standards in 2022.

The proposed CAFE-III framework aims to cap fleet emissions at 88.4g/km by 2027, tightening further to 71.5g/km by 2032. The Bureau of Energy Efficiency has stated that stricter caps are required, noting that several Indian automakers have already exceeded CAFE-II targets ahead of schedule. Regulators cite this to indicate that the industry may have the capacity to comply with stricter norms.

Industry disagreement over targets and exemptions

Automakers have raised concerns regarding the proposed emission targets and the shift towards WLTP-based testing, which is considered closer to real-world driving conditions but more stringent than India's existing MIDC cycle.

The draft framework has also led to debate over weight-based exemptions for smaller cars. An earlier draft released in September proposed leniency for petrol cars weighing 909kg or less, which was viewed as favouring manufacturers with strong small-car portfolios, such as Maruti Suzuki.

This exemption was later removed, increasing the requirement for automakers to rely more on electric and hybrid vehicles to meet compliance targets.

Electric vehicle credits and compliance tools

The proposed framework includes super credits for electric and hybrid vehicles, allowing them to count as multiple vehicles when calculating fleet emissions. Under the draft rules, each electric vehicle sold would count as three vehicles for compliance, while plug-in hybrids and flex-fuel hybrids would receive multipliers ranging from 2.0 to 2.5.

Industry groups have requested higher multipliers, stating that this would simplify compliance. However, environmental organisations have stated that higher credits could reduce the effectiveness of emission regulations.

To support the transition, the rules allow up to three automakers to form a compliance pool, treating them as a single entity for the purpose of calculating fleet-wide averages. Penalties for non-compliance could amount to hundreds of crores of rupees for large manufacturers, depending on the level of exceedance per vehicle sold.

Regulatory uncertainty ahead of the 2027 deadline

Union Power Minister Manohar Lal Khattar has stated that the government will take a consensual approach before finalising the rules, indicating that industry alignment will be a factor in the decision.

However, divisions remain within the industry. At a SIAM CEOs Council meeting, 15 out of 19 automakers voted against a proposed weight-based exemption for small cars, with only Maruti Suzuki and Renault supporting the measure. This prevented the industry body from presenting a unified position to the government.

With the April 2027 deadline approaching, analysts indicate that the government may delay the rollout, revise the targets, or proceed with the current draft, depending on the outcome of ongoing discussions.

The broader regulatory implications extend beyond individual company strategies. The proposed fuel-efficiency rules could affect pricing, safety, model strategy, and the pace of electrification in the coming years.