The Indian government issues draft rules on vehicle fuel efficiency for four-wheeled motor vehicles. ESG BROADCAST shares key takeaways
The Government of India published the draft Corporate Average Fuel Efficiency (CAFE) 2027 standards on 25 September 2025. The draft rules were issued to seek public comments and were aimed at regulating the fuel efficiency of passenger cars. These standards were announced to replace the earlier norms issued in 2015 and 2021.
The draft standards are set to apply from 1 April 2027 and remain effective until 31 March 2032. The draft Corporate Average Fuel Efficiency (CAFE) 2027 standards applies to M1 category motor vehicles particularly passenger cars with up to nine seats and weight not exceeding 3,500 kilograms. These vehicles included both those manufactured in India and those imported for sale. Certain categories such as special purpose vehicles and small volume manufacturers were exempted from the compliance. The draft rules defined the calculation of average fuel consumption in terms of petrol equivalent litres per 100 kilometres. Manufacturers were required to ensure that their fleet of vehicles met the prescribed annual average fuel consumption limits. The calculation included vehicle weight, declared carbon dioxide emissions, and testing cycles.
The draft also specified that with effect from 1st April, 2026,manufacturers have to report the performance Modified Indian Driving Cycle (MIDC) in g CO2/km and performance Worldwide Harmonized Light Vehicle Test Procedure (WLTP) in g CO2/km for each said motor vehicle model as an when notified by the Ministry of Road Transport and Highways (MoRTH).The government proposed additional provisions to encourage adoption of clean vehicle technologies. Electric, hybrid, and flex fuel vehicles were allowed super credits through higher weightage in compliance calculations. Technologies that demonstrated reduction in carbon dioxide emissions were also allowed to claim benefits after certification by testing agencies.
A carbon neutrality factor(CNF) is proposed for vehicles running on
1.Petrol with ethanol blends (E20 to E30) 8% CNF on tailpipe CO2,
- Flex Fuel Ethanol Vehicles & Strong Hybrid Electric Vehicles (Flex Fuel Ethanol) 22.3% CNF on tailpipe CO2 and strong hybrid electric vehicles and
3.CNG vehicles CNF of 5% or CBG blending percentage notified by MoPNG whichever is higher.
The government reserved the right to lower the official standard for car weight used in the fuel efficiency formula, but only if data showed that the actual average weight of new cars sold in 2026 had already dropped below 1,170 kilograms. Manufacturers are required to declare both performance MIDC and performance WLTP to the Bureau of Energy Efficiency for said motor vehicle models sold from 1st April 2026 onwards. Under CAFE 2027, manufacturers are allowed to form pools with up to three companies. A pool manager will be the contact point for the pool and the pool manager will also be responsible for ensuring compliance and paying penalties, if applicable. The Ministry of Road Transport and Highways(MoRTH) was given responsibility for enforcement of testing and reporting. The Ministry of Power and the Bureau of Energy Efficiency were assigned compliance checks under the Energy Conservation Act, 2001
The draft invites comments from major automotive stakeholders including manufacturers, testing agencies, and industry associations. Once finalized, the new CAFE 2027 standards are expected to guide fuel efficiency requirements for passenger cars in India from 2027 to 2032. Strategic significance lies in creating a mandatory, market-driven framework for fuel efficiency improvement, which simplifies the compliance pathway for manufacturers.Ultimately, the successful implementation of the CAFE 3 norms will position India to achieve significant reductions in oil imports and vehicular pollution, securing the nation’s energy independence and long-term environmental governance goals.
ESG BROADCAST will continue monitoring the updates related to this topic. Stay tuned for further updates.
