CAFE-III Pushes India Towards EVs, But Doesn’t Mandate Them

India’s new Corporate Average Fuel Economy (CAFE-III) framework gives electric vehicles a significant advantage in meeting fleet-level efficiency requirements. But the government has stopped short of prescribing how many electric cars a manufacturer must sell.

Instead, the notification creates a wider compliance framework in which EVs compete with hybrids, alternative fuels and efficiency technologies as different routes to meeting progressively tighter targets.

The notification issued by the Ministry of Power on September 29 will apply to M1-category passenger vehicles manufactured or imported for sale in India from April 1, 2027, to March 31, 2032.

It requires each manufacturer’s annual average actual fuel consumption to be less than or equal to its applicable annual standard.

CAFE-III Tightens Fleet-Level Target

According to the gazette notification, the annual CAFE fuel-consumption standard or target is calculated using a formula linked to the weighted average unladen mass of a manufacturer’s fleet.

The reference weight is 1,229 kg. At that reference weight, the annual fuel-consumption standard falls from 3.9960 litres per 100 km in FY28 to 3.3273 litres per 100 km in FY32.

The Ministry of Power, in a statement on September 30, described this as an improvement of about 16.7% in fuel efficiency over the five-year period.

It said the revised target curve is designed to be more weight-sensitive, with relatively softer targets for lighter vehicles and greater efficiency requirements for heavier vehicles.

The important point is that CAFE-III regulates the average performance of a manufacturer’s fleet, rather than setting a fuel-consumption requirement for every individual model.

For example, if a manufacturer sells a mix of SUVs, smaller petrol cars, hybrids and EVs, the higher fuel consumption of some SUVs does not automatically put the company in violation. What matters is the manufacturer’s prescribed fleet-average performance after the relevant CAFE-III calculations.

EVs Get The Strongest Super-Credit

The notification allows manufacturers to use volume derogation factors, commonly called super-credits, while calculating fleet-average fuel consumption. Battery electric vehicles (BEVs) and range-extended electric vehicles receive the highest factor at 3.0.

That means an OEM can give greater weight to eligible EV volumes in its CAFE calculation. Plug-in hybrids and strong hybrids running on flex fuel receive a 2.5x factor, strong hybrids 1.6x, and flex-fuel ethanol vehicles 1.1x.

Crucially, the notification said a manufacturer “may consider using” these volume derogation factors. It did not say that manufacturers must sell a certain number or percentage of BEVs.

This is the distinction at the heart of CAFE-III: EVs receive the strongest incentive, but there is no EV sales mandate in the notification.

More Than EVs Can Help Carmakers Comply

The government has deliberately created several other routes to improve a manufacturer’s CAFE performance. The notification recognised carbon-neutrality factors for ethanol-blended petrol, flex-fuel ethanol, CNG and diesel with specified biofuel blending.

E20 and higher ethanol-blended petrol vehicles, including eligible hybrids, receive an 8% carbon-neutrality factor. Flex-fuel ethanol vehicles receive 22.3%, while CNG vehicles receive 5% or the notified CBG blending percentage, whichever is higher.

The rules also recognised 12 fuel-saving technologies, including start-stop systems, regenerative braking, six-speed-or-higher transmissions, efficient alternators, motor-generators, LED lighting, advanced glazing, electric water pumps and high-efficiency air-conditioning.

According to the notification, a manufacturer can claim 1 g CO₂/km for each eligible technology, subject to an overall cap of 9 g CO₂/km.

The government described CAFE-III as a technology-neutral framework that gives manufacturers multiple ways to improve fleet efficiency. In other words, a carmaker can sell some vehicles that consume more fuel than the fleet target, as long as the performance of its other vehicles brings the company’s overall average within the prescribed limit.

This is where the composition of a manufacturer’s portfolio becomes important. More fuel-efficient petrol or diesel vehicles, hybrids and EVs can help bring down the fleet average, potentially allowing an automaker to continue selling larger or less-efficient vehicles alongside them.

Credit Route And Criticism

According to the notification, CAFE-III also creates a credit-debit system. A manufacturer whose fleet performs better than its prescribed target earns credits, while a shortfall creates debits. Credits can be carried forward within the relevant compliance block and traded between manufacturers.

A manufacturer with a deficit can also buy credits from the Bureau of Energy Efficiency. The price is set at ₹2,500 per g CO₂/km in FY28, rising by ₹500 each year to ₹4,500 in FY32.

This means an OEM’s route to compliance does not necessarily have to be through higher EV sales. It can combine cleaner vehicles, efficiency technologies, alternative fuels, earned credits, traded credits or BEE credit purchases.

Former NITI Aayog CEO Amitabh Kant has criticised the framework for not pushing EV adoption aggressively enough. “Electric vehicles become one option among many, when they should be the destination,” he said in a post on X (formerly Twitter).

According to Kant, the norms point to 11% electric-car penetration by 2032. To be sure, this 11% figure is Kant’s interpretation of the framework, it is not an EV sales target prescribed in the Gazette.

The notification itself takes a different approach. It explicitly combines electrification with hybrids, alternative fuels and efficiency technologies.

The real test, therefore, is not whether CAFE-III gives EVs an advantage or mandate them. It clearly does. The question is whether a 3x EV super-credit, within a technology-neutral compliance system, will be strong enough to change manufacturers’ product mix — or whether other routes to compliance will remain equally important.