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The Centre has released the draft CAFE III (Corporate Average Fuel Efficiency) norms for passenger vehicles

ICICIdirect Research 17 Jul 2026 DISCLAIMER

News: According to media sources, The Centre has released the draft CAFE III (Corporate Average Fuel Efficiency) norms for passenger vehicles and invited stakeholder comments over the next 21 days. Applicable to M1 category passenger vehicles from April 1, 2027, the framework proposes progressively tighter manufacturer-specific fuel efficiency targets from FY28 to FY32, while introducing new compliance mechanisms such as volume derogation factors, carbon-neutrality benefits for renewable fuels, tradable compliance credits, and incentives for cleaner technologies. The draft also provides super credits for electric, plug-in hybrid, strong hybrid and flex-fuel vehicles, along with compliance benefits for fuel-saving technologies, aiming to provide a clear five-year roadmap for automakers.

View: The proposed CAFE III norms represent a balanced approach to improving fuel efficiency while giving manufacturers flexibility through technology-neutral incentives and compliance credits. Automakers with strong hybrid, EV and alternative-fuel portfolios, such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra and Hyundai, could benefit from the incentives, while companies with higher emissions may need to accelerate investments in cleaner technologies.

Impact: Neutral

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