How India's CAFE norms work, and what CAFE III changes from April 2027

The short answer first. CAFE, or Corporate Average Fuel Economy, does not tell any single car how efficient it must be. It sets a target for the sales-weighted average of everything a carmaker sells in India in a financial year. One thirsty SUV is fine as long as enough efficient cars are sold alongside it. The target itself is not fixed either, it is calculated from the average kerb weight of that maker's own fleet, so a company selling heavier cars gets a slightly easier number.

The second thing owners get wrong is who writes it. CAFE is not a CMVR rule from MoRTH. It is notified by the Ministry of Power under the Energy Conservation Act and administered by the Bureau of Energy Efficiency. That is why the compliance currency is grams of CO2 per km and litres per 100 km rather than a pass or fail on a test bench.

How the maths actually runs

Autocar India's explainer of the framework describes the calculation in two stages. The maker's corporate average kerb weight is worked out from each model's weight and its sales volume. Each model then gets a CO2 target off a weight-based curve, and those are combined into one fleet target. Under CAFE II, in force from 2022-23, the base target is 113 g CO2/km at an average industry kerb weight of 1,145 kg, down about 13 per cent from CAFE I's 130 g CO2/km at 1,037 kg.

CAFE III, notified on 29 September 2026, applies to M1 passenger vehicles made or imported for sale in India from 1 April 2027 to 31 March 2032. At the new reference weight of 1,229 kg, the permitted fleet average falls from 3.996 litres per 100 km in FY2028 to 3.3273 litres per 100 km in FY2032, an improvement of roughly 16.7 per cent.

The flexibilities are where the real engineering decisions sit

CAFE III does not order anyone to build EVs. It makes them very valuable on the spreadsheet. A battery electric or range-extended EV counts three times in the fleet calculation. A plug-in hybrid or a flex-fuel strong hybrid counts 2.5 times, a conventional strong hybrid 1.6 times and a flex-fuel ethanol vehicle 1.1 times.

There are two more routes. Alternative fuels get carbon-neutrality factors, with E20 petrol credited at 8 per cent and flex-fuel ethanol at 22.3 per cent, per Outlook Business's reading of the notification. Separately, twelve recognised fuel-saving technologies such as idle start-stop and regenerative braking can earn reductions worth up to 9 g CO2/km in total.

Miss the target and you no longer simply wait for a fine that never comes. Makers who beat their target generate credits, those who fall short accumulate debits, and credits can be traded between companies or bought from BEE at a rising price per gram of CO2 per km.

What it means for the car you buy

Expect more strong hybrids and more EVs in showrooms by 2028, and expect small petrol cars to stay exactly as regulated as everything else. The draft's proposed concession for small petrol cars did not survive into the final notification. Makers must also declare each model's CO2 under both the existing Modified Indian Driving Cycle and WLTP from 1 April 2027, which is the first step towards India quoting fuel economy on the harder, more realistic cycle.

One Bengaluru footnote. CAFE covers M1 cars only, so the city's electric two-wheeler industry sits outside this particular rulebook, however much it shapes the EV conversation around it.

Sources

• New CAFE III Rules Give EVs 3x Credit, Allow Credit Trading, Autocar Professional
• New CAFE 3 norms revealed. EVs get 3x credit, Autocar India
• CAFE-III Pushes India Towards EVs, But Doesn't Mandate Them, Outlook Business
• What's CAFE all about? Autocar India