India’s automotive landscape is undergoing a major regulatory shift as the government updates the Corporate Average Fuel Efficiency Phase‑III (CAFE‑III) norms — and small cars have lost a proposed concession under the new rules. The change is expected to affect how carmakers plan their future product lineups and emissions strategies.

What Are CAFE‑III Norms?

CAFE‑III is the third phase of India’s fuel‑efficiency and carbon emissions regulations for passenger vehicles. The rules aim to reduce the average fleet CO₂ emissions made by automakers over a five‑year cycle — in this case from April 2027 through march 2032. These norms are measured in grams of CO₂ per kilometre and influence how efficiently new cars must perform.

Small car Leniency Removed

Earlier drafts of the CAFE‑III proposal included a special concession for small petrol cars — specifically vehicles weighing 909 kg or less — allowing them to meet slightly easier emissions targets than larger models. This change was widely seen as a benefit to manufacturers dominating the small‑car segment, particularly Maruti Suzuki, which holds about 95% market share in lightweight cars.

However, the latest CAFE‑III draft has scrapped this leniency entirely. Automakers must now comply with the same core fuel‑efficiency targets across its fleet regardless of vehicle weight — meaning small cars no longer receive automatic emissions relief.

Why the Change Happened

The move to remove the small‑car carve‑out followed strong pushback from several other automakers, including Tata Motors, mahindra & mahindra, and Kia, who argued that the earlier concession unfairly benefited a single company and disrupted competitive balance. These manufacturers contended that benefits tied to weight categories distort market incentives and can potentially compromise safety standards.

The updated rules also tighten the emissions reduction pathway, making the targets steeper over time — and reducing the degree to which heavier cars could offset emissions under the older system.

What This Means for Automakers

🚗 No Easy Outs for Small Cars

With leniency removed, small cars must now meet the same fleet‑average CO₂ emissions targets as larger vehicles. This could increase compliance pressure for manufacturers that rely heavily on lightweight petrol cars.

⚡ Push Toward Electrification

The CAFE‑III framework includes credits for electric vehicles (EVs) and plug‑in hybrids, encouraging automakers to expand their cleaner technology offerings — a move experts say will accelerate India’s transition toward electrified mobility.

💸 Higher Penalties for Non‑Compliance

Failing to meet the new fuel‑efficiency standards could result in penalties of up to $550 per vehicle, emphasizing the importance of efficient and low‑emission lineups.

Industry Reactions Still Mixed

The update has intensified an existing divide within the industry:

Some carmakers argue stricter rules will push innovation and cleaner cars.

Others warn that smaller, affordable cars may struggle to cope with tougher efficiency demands, potentially raising costs or driving models out of market segments.

Final Takeaway

The updated CAFE‑III norms mark a significant policy shift by removing special weight‑based exemptions for small cars and by setting uniform, more ambitious emissions targets across the board. This reinforces the government’s goal of reducing transport‑related emissions and steering the auto industry toward more efficient and electrified vehicles ahead of 2032.

 

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