India Tightens Fuel Efficiency Rules for Cars

India is set to implement revised Corporate Average Fuel Efficiency (CAFE) III standards, aiming to balance the automotive industry's diverse needs. The updated regulations will introduce stricter fuel efficiency goals for major car manufacturers, while smaller companies may receive some flexibility. A key alteration is the discontinuation of derogation allowances for small cars, a move anticipated to raise the entry-level petrol car prices.

The revised CAFE III standards will see a reduced slope value from 0.002 to 0.00153. This adjustment makes compliance more challenging for heavier vehicles by granting them less carbon dioxide emission headroom relative to their weight. Manufacturers will be compelled to invest more in electrification or hybrid technologies to meet these more rigorous demands. The removal of category-specific exemptions for small cars and the flattening of the slope are intended to ensure emissions standards remain rigorous, even as vehicles become heavier due to safety features and batteries.

These modifications, refined from the September 2025 draft, are awaiting final approval, potentially delaying the notification of norms beyond the initially planned February end. The industry anticipates that carmakers will need to integrate advanced fuel-saving technologies or face penalties to comply with the new emission targets.