Proposed concessions for small cars in 2027 CAFE 3 norms dropped

The Indian government, in its new draft proposal, has scrapped the proposed concession for small cars in the April 2027-bound CAFE 3 (Corporate Average Fuel Efficiency) rules after brands such as Tata Motors and Mahindra argued it would benefit just one carmaker, a Reuters report stated. A clause in a 2025 draft suggested some relaxation for cars under 4 metres in length, with an engine capacity of up to 1200cc and an unladen kerb weight under 909kg. Manufacturers of such cars could then claim an additional CO₂ reduction of 3g/km per car, capped at 9g/km, in each reporting period. Maruti Suzuki has a 95 percent share in this category of cars.

1. New rules restrict over-compensation based on vehicle weight
2. Penalty of up to USD 550 per car upon non-compliance with CAFE 3 norms

Increased push to electric and hybrid cars

The Reuters report, while citing the latest 41-page draft, added that the Ministry of Power has tightened other parameters and increased pressure on car companies to increase electric and hybrid car sales. The document revealed the new rules restrict over-compensation based on vehicle weight, level the field between light and heavy car manufacturers and are aimed at delivering real-world efficiency gains, bringing in “a substantially steeper reduction pathway” for emissions.

Under the CAFE 3 proposal, passenger vehicles under the M1 group, including cars with up to 9 seats (including the driver’s) and a kerb weight under 3,500kg, will have to adhere to the stricter emission standards. Updated every five years, these norms push manufacturers to adopt cleaner fuels like CNG and flex-fuel, and even electric. The new plan also decreased the extent to which heavier vehicles get more relaxed targets. “Manufacturers with heavier [models]...are required to achieve stronger intrinsic efficiency improvements,” the document further stated.

CAFE 3 to feature credit-based system

Credits will be provided to companies selling more electric and hybrid vehicles, and they will be allowed to pool their fuel-consumption performance with other automakers. Non-compliance will lead to a penalty of up to USD 550 (Rs 49,886 as on February 9, 2026, at 3:06pm) per car. Factoring in the credits, emissions could fall to as low as 76g/km if electric vehicles account for 11 percent of total car sales by 2032.