Friday, July 17, 2026
By Kamal Swami
Centre To Implement Strict Fuel Efficiency Norms From FY28
The Government of India has prepared a draft of the Corporate Average Fuel Efficiency (CAFE-III) norms, proposing tougher fuel economy standards for passenger vehicles from April 1, 2027 (FY28). The main objective of the new norms is to reduce fuel consumption and carbon emissions and to encourage automakers to adopt cleaner, more efficient vehicle technologies.
One of the main features of the proposal is the introduction of a compliance credit trading mechanism. Under this system, manufacturers that exceed the prescribed fuel efficiency targets will earn compliance credits. These credits can either be carried forward for future use or traded with manufacturers that fail to meet the required standards, providing greater flexibility in regulatory compliance.
The draft CAFE-III norms also offer incentives for cleaner mobility solutions, including battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), hybrid models, and flex-fuel vehicles. These vehicles will receive compliance benefits through mechanisms such as super credits and carbon neutrality factors, making it easier for manufacturers to achieve their fleet-wide fuel efficiency targets.
In addition, the government has proposed recognising advanced fuel-saving technologies, including regenerative braking systems, automatic start-stop systems, tyre pressure monitoring systems (TPMS), LED lighting, high-efficiency air-conditioning units, and other energy-efficient innovations. These measures are expected to encourage automakers to invest in technologies that improve vehicle efficiency without compromising performance.
Another significant proposal is the gradual transition towards the Worldwide Harmonised Light Vehicles Test Procedure (WLTP) for fuel economy evaluation. While the existing Modified Indian Driving Cycle (MIDC) will continue to be used for compliance during the initial phase, manufacturers will be required to submit test data under both testing procedures to ensure a smoother transition.
The proposed CAFE-III regulations will remain in force from FY28 to FY32 and are aligned with India's long-term strategy to reduce oil imports, improve energy efficiency, lower greenhouse gas emissions, and support the country's net-zero ambitions. Stakeholders have been invited to submit their feedback before the norms are finalised.
