New fuel-efficiency and CO2 rules will apply from April 2027, with EVs receiving a 3x compliance credit while the separate concession for sub-909 kg petrol cars has been removed
Amitabh Kant questions the direction of India's mobility policy
Former NITI Aayog CEO Amitabh Kant has criticised India's newly notified Corporate Average Fuel Economy-3 (CAFE-3) norms, describing the framework as a “huge missed opportunity” for the country to accelerate its transition towards cleaner and more advanced mobility technologies.
In a post on X, Kant argued that India had an opportunity to use the next generation of fuel-efficiency regulations to make a technological leap similar to the transformation witnessed in areas such as UPI and smartphones.
He said the new framework was “backward looking at worst and status quoist at best” and argued that electric vehicles should have been treated as the central destination of India's mobility transition rather than one technology option among several.
His comments come after the Ministry of Power notified the CAFE-3 framework for passenger vehicles, with the new regime scheduled to apply from April 1, 2027, through March 31, 2032.
What are CAFE norms?
Corporate Average Fuel Economy rules are designed to regulate the average fuel consumption and carbon dioxide emissions of a carmaker's passenger-vehicle fleet.
Instead of setting an identical emission requirement for every individual model, the framework calculates a manufacturer's fleet-wide performance based on the vehicles it sells.
This means a carmaker selling a large number of relatively efficient vehicles can offset some of the emissions from higher-emission models within the overall fleet calculation.
CAFE rules are therefore an important policy tool because they influence product planning, powertrain choices, vehicle efficiency, research and development and the pace at which automakers introduce cleaner technologies.
The CAFE-2 regime is currently in force, while CAFE-3 will cover the five-year period beginning FY28.
New regime starts from April 2027
The new framework will cover M1-category passenger vehicles, broadly including hatchbacks, sedans, SUVs and MPVs with up to eight passenger seats apart from the driver.
The regulations establish fuel-efficiency and CO2 requirements for the industry while allowing different technologies to contribute towards compliance.
The framework comes at a crucial point for India's automobile industry, as manufacturers are simultaneously dealing with tighter emissions requirements, growing EV competition, changing consumer preferences and significant investments in battery and electric-vehicle manufacturing.
The government has also been developing broader policies to support EV manufacturing and clean mobility.
EVs receive a significant compliance advantage
One of the most important features of CAFE-3 is the continuation of super credits for low-emission technologies.
Under the final structure described in the notification, one battery electric vehicle is counted as three vehicles for the purpose of calculating fleet performance. Range-extended electric vehicles receive the same 3x factor.
This effectively allows manufacturers with higher EV sales to improve their fleet-average compliance more rapidly.
Plug-in hybrids and strong hybrids operating on flex-fuel receive a 2.5x factor, while strong hybrids receive a 1.6x factor. Flex-fuel vehicles receive a 1.1x factor.
The structure represents a significant evolution from earlier proposals. Previous drafts had contemplated different multipliers for various technologies, including higher incentives for some categories. The final framework retains a particularly strong compliance benefit for battery-electric vehicles.
The concept of super credits has been used in India's CAFE framework to give additional regulatory value to cleaner vehicles.
Small-car concession removed
A major point of contention during the development of CAFE-3 was whether very small petrol cars should receive a separate regulatory concession.
The final rules remove the proposed special benefit for petrol cars weighing up to 909 kg.
The issue had divided automobile manufacturers. Maruti Suzuki had sought relief for smaller petrol vehicles, while companies including Tata Motors and JSW MG Motor had opposed a weight-based concession.
Earlier drafts had proposed a reduction in the CO2 figure used for CAFE calculations for petrol cars below the 909 kg threshold. That provision was subsequently removed from the final structure.
The dispute reflected a broader question facing the industry: whether regulations should provide greater flexibility to protect India's small-car segment or push manufacturers more aggressively towards cleaner technologies.
Business Standard previously reported that the small-car issue had become one of the key points of disagreement during the CAFE-3 consultation process.
Vehicle weight will influence compliance
Another important element of the framework is the role of vehicle weight in determining manufacturer-specific CAFE targets.
The target is calculated using the weighted average unladen weight of a manufacturer's new vehicles. The reference weight under the new framework is 1,229 kg.
The annual weight multiplier is scheduled to decline during the CAFE-3 period, moving from 0.00158 in FY28 to 0.00131 in FY32.
For automakers, this creates an incentive to pay close attention to vehicle architecture, powertrain efficiency and the overall weight profile of their product portfolios.
It could also influence decisions around battery sizes, engine technology and the balance between compact vehicles and larger SUVs.
Credit-debit mechanism changes compliance economics
CAFE-3 also introduces a credit-debit mechanism through which manufacturers can track their compliance position.
A company that performs better than its prescribed target can accumulate credits, while a manufacturer falling short can accumulate debits.
The credits will be maintained through a manufacturer-level passbook, allowing companies to manage compliance across the relevant period.
The first compliance block will cover FY28-FY30, while the second will cover FY31-FY32. Credits that remain unsettled at the end of the relevant compliance block will lapse.
This creates an additional strategic consideration for automakers: the ability to manage their vehicle mix and compliance position over several years rather than treating every model or financial year independently.
Manufacturers can trade compliance credits
The new framework also creates a market mechanism around CAFE compliance.
Manufacturers with surplus credits can potentially transfer them to other manufacturers facing a deficit, allowing companies with different product portfolios to manage their regulatory obligations more efficiently.
A manufacturer facing a shortfall can also buy credits from the Bureau of Energy Efficiency.
The price of such credits starts at ₹2,500 per gram of CO2 per kilometre in FY28 and rises to ₹4,500 in FY32.
Credit trading and buyouts are scheduled to be permitted during a specified annual window from October 1 to October 31.
This creates a potential new cost for manufacturers whose portfolios remain heavily dependent on higher-emission vehicles.
Kant raises the oil-import question
Kant's criticism is also linked to India's dependence on imported crude oil.
He pointed out that India imports close to 90 per cent of its oil requirements and argued that fuel-efficiency policy should therefore be closely aligned with the country's energy-security objectives.
From that perspective, increasing vehicle efficiency can reduce fuel consumption, while faster EV adoption can potentially reduce exposure to imported petroleum over the longer term.
Kant argued that India's expanding battery and EV manufacturing ecosystem should have been used as a stronger foundation for the country's next stage of mobility policy.
EV adoption target becomes a key issue
Kant also questioned the pace of EV adoption implied by the new framework.
According to his comments, the CAFE-3 framework envisages electric cars accounting for around 11 per cent of passenger-car sales by 2032, while EV penetration is already approaching 8 per cent of car sales in the current financial year.
His argument is that if the market is already approaching the regulatory target, the framework may not create a sufficiently strong additional push toward electrification.
The debate is significant because India's passenger-vehicle market remains technology-diverse, with petrol, diesel, CNG, hybrid, flex-fuel and electric vehicles competing simultaneously.
Industry faces different levels of compliance pressure
The impact of CAFE-3 will not be uniform across manufacturers.
Automakers with a higher proportion of EVs or strong hybrids can potentially use super credits to improve their fleet-average performance. Manufacturers with predominantly internal-combustion portfolios may need to accelerate product upgrades or increase their cleaner-vehicle mix.
Earlier industry analysis had suggested that the stricter CAFE regime could require a meaningful increase in EV penetration for some manufacturers. Business Standard reported in February that the BEE was considering progressively tighter CAFE-3 targets after major carmakers comfortably met CAFE-2 requirements.
The eventual impact will depend on the final compliance calculations, individual manufacturers' portfolios and the pace of EV adoption.
Carmakers now face strategic product decisions
CAFE-3 is more than an emissions regulation. It could influence the strategic direction of India's passenger-vehicle industry over the next five years.
Automakers will need to determine how much capital should be allocated to EV platforms, batteries, hybrids, efficient internal-combustion engines and alternative-fuel technologies.
Companies may also have to reconsider product launches, vehicle weights and pricing strategies.
For consumers, the impact could eventually be visible through changes in the availability and pricing of different powertrains.
For manufacturers, the regulatory framework could increase the cost of maintaining large fleets of less-efficient vehicles while rewarding companies able to scale cleaner technologies.
India's mobility transition enters a new phase
The CAFE-3 framework arrives at a time when India's automotive sector is undergoing a structural transformation.
EV adoption is increasing, domestic battery manufacturing is expanding and the government is promoting alternative fuels and cleaner mobility.
At the same time, petrol and hybrid vehicles remain important parts of the market, while the small-car segment continues to face affordability and demand challenges.
The final CAFE-3 framework therefore attempts to balance multiple technologies rather than prescribing a single powertrain.
That technology-neutral approach is precisely what Kant has criticised. His argument is that regulation should not merely accommodate the industry's existing direction but should actively accelerate the technology India wants to develop for the future.
Market Outlook
CAFE-3 will become an important strategic variable for India's automobile companies from FY28 onward.
The 3x compliance factor for battery-electric vehicles provides a significant incentive for automakers to expand EV sales, while the removal of the separate sub-909 kg petrol-car concession increases the importance of fleet-wide efficiency. Hybrid, flex-fuel and other technologies will continue to have a role through their respective compliance multipliers.
For investors, the key factors to monitor will be EV penetration, hybrid sales, product mix, fleet-average emissions, credit requirements, technology investments and the potential impact of compliance costs on margins.
The policy could also create different outcomes across automakers depending on their existing product portfolios. Companies with established EV or hybrid offerings may have greater flexibility in meeting the new requirements, while manufacturers with heavier exposure to conventional powertrains may need to accelerate investment and product changes.
The broader policy debate highlighted by Amitabh Kant will continue: whether CAFE-3 should primarily be viewed as a technology-neutral emissions framework or as a stronger mechanism for accelerating India's transition towards electric mobility. The answer will ultimately depend on how manufacturers, consumers and policymakers respond to the new rules between 2027 and 2032.