India's proposed third phase of Corporate Average Fuel Efficiency (CAFE 3) norms has now gone through multiple iterations. An initial draft was floated in June 2024 for consultation. A revised draft followed in September 2025. However, it triggered strong objections from automakers, industry bodies and research organisations.
The latest January 2026 41-page policy note issued by the Bureau of Energy Efficiency (BEE) under the Ministry of Power, and reviewed by Moneycontrol, shows how those objections have led to structural changes in the proposed framework that will apply from April 1, 2027, to March 31, 2032.
The revised draft is not just a minor tweak. It recalibrates the core formula, removes certain relaxations and tightens how compliance will be calculated.
What triggered the objections
The September 2025 draft drew criticism on three main counts.
First, it proposed an additional 3 g CO₂/km benefit for small petrol cars weighing 909 kg or less, with engine capacity up to 1,200 cc and length under 4 metres. Several stakeholders argued this carve-out could distort competition and benefit only a narrow part of the market, dominated by Maruti Suzuki India.
Second, the weight-based formula in the earlier draft was seen as giving excessive relaxation to heavier vehicles. Under CAFE norms, a manufacturer's fleet target is linked to its average vehicle weight. Industry feedback suggested the proposed slope of the formula allowed disproportionate relief as vehicle mass increased.
Third, there were concerns that technology-based credits, capped at 9 g/km in the September draft, were too generous and could allow compliance without sufficient intrinsic efficiency improvements.
These concerns are reflected in the revised policy note, which explains the need to reduce over-compensation linked to weight and limit excessive reliance on credits.
The biggest change: Rewriting the formula
The most important revision in the January 2026 draft is in the mathematical formula used to calculate a manufacturer's fleet target.
In the September 2025 draft
| Slope (a) | 0.002 litres/100 km per kg |
| Reference weight (b) | 1,170 kg |
In the January 2026 draft
| Slope (a) | 0.00153 litres/100 km per kg |
| Reference weight (b) | 1,229 kg |
The slope determines how much a manufacturer's allowed fuel-consumption target increases as its fleet's average weight rises. A higher slope gives more relaxation to heavier fleets.
By reducing the slope and increasing the reference weight, the revised draft lowers the extra benefit that comes purely from higher vehicle mass. In simple terms, heavier fleets will now need to achieve stronger intrinsic efficiency improvements rather than depending on structural relaxation.
"In the revised CAFE 2027, the slope is reduced to 0.00153 litres/100 km per kg, while the reference weight is updated to 1,229 kg, reflecting the current industry average. The flatter slope reduces the extent to which higher vehicle weight translates into a more relaxed target. As a result, manufacturers with heavier fleets receive less weight-based relaxation, and are required to achieve stronger intrinsic efficiency improvements," the January 2026 draft said.
Small-car concession removed
The 909 kg small-car provision has been removed in the revised draft. There is no longer an additional automatic 3 g/km benefit for ultra-light petrol vehicles. The compliance framework now applies more uniformly across segments.
Technology credit cap reduced
The cumulative cap on CO₂-reducing technology derogation has been reduced from 9 g/km to 6 g/km.
"In line with international practices and industry feedback, and considering the absence of notified government approved demonstration procedures, the overall cap on technology derogation is proposed to be reduced from 9 g/km to 6 g/km, ensuring that incentives remain focussed on genuinely innovative technologies," the January 2026 draft said.
This means manufacturers cannot rely as heavily on certified technologies to offset their fleet emissions. The emphasis shifts towards real improvements in engine, powertrain and vehicle efficiency.
Targets and reduction pathway
At the revised 1,229 kg reference weight, the fleet CO₂ targets under CAFE 3 are as follows.
| FY28 | 92.11 g/km |
| FY29 | 88.64 g/km |
| FY30 | 86.02 g/km |
| FY31 | 80.71 g/km |
| FY32 | 76.01 g/km |
The policy note estimates that "bare performance", before applying credits and flexibilities, would decline from 114.08 g/km in FY27 to 100.11 g/km in FY32. That is a reduction of about 12.25% over five years.
Credits retained
The revised draft retains super credits for cleaner technologies.
| Battery electric vehicle and range-extender hybrid | 3.0 |
| Plug-in hybrid and flex-fuel strong hybrid | 2.5 |
| Strong hybrid | 2.0 |
| Flex-fuel vehicle | 1.5 |
Carbon Neutrality Factor (CNF) is also formalised.
| 8% for petrol vehicles using E20-E30 blends |
| 22.3% for flex-fuel and flex-fuel strong hybrids |
| 5% for CNG vehicles, or higher if notified |
The revised draft continues to permit pooling of manufacturers for compliance, and does not retain the earlier explicit cap of three members per pool, while 'low-volume manufacturers' selling fewer than 1,000 units annually remain exempt.
What does it mean?
Taken together, the January 2026 draft shows that stakeholder objections to the September 2025 proposal have reshaped the compliance architecture. Weight-based relaxations have been moderated, the small-car carve-out removed and technology credits capped more tightly.
Queries sent to BEE remained unanswered till the time of publication.
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