Relaxing Fuel-Efficiency Norms for Small Cars in India: A Paradigm Shift

India’s CAFE regulations aim to reduce the carbon footprint of passenger vehicles by setting fleet-wide targets for average fuel consumption and associated CO₂ emissions. These norms currently link permissible emissions norms directly and linearly to the vehicle’s weight, meaning heavier cars get more leniency while lighter cars face stricter targets.

While this model works fairly for mid-to-large cars, it creates an inherent disadvantage for small cars—typically under 909 kilograms and 4 meters in length—because:

The scope for technological improvements to further reduce emissions in small petrol cars is increasingly limited.
Small cars, predominantly hatchbacks and compact sedans, already achieve relatively low emissions compared to larger vehicles.
Stringent norms applicable uniformly without size differentiation have caused operational and financial constraints on manufacturers focused on small car segments.

These factors have spurred demand for tailored regulations recognising the realities of small car design and usage.

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What Are the Proposed Changes?

On September 25, 2025, the Bureau of Energy Efficiency released a draft revising the CAFE 3 norms, introducing pioneering amendments specifically benefiting small cars. Key features include:

1. Additional Carbon Emission Reduction Credits

Small petrol cars qualifying under the revised norms—vehicles with:

Unladen weight up to 909 kg,
Engine capacity not exceeding 1,200 cc,
Length no greater than 4,000 mm—

are eligible to claim an additional 3 grams of CO₂ per kilometer reduction beyond certified technology improvements. For example, if a small car attains a 2 gm/km emission saving via aerodynamic tuning or engine upgrades, it can report a total 5 gm/km saving for compliance calculation.

To ensure fairness, the cumulative benefit claim per model is capped at 9 gm/km for any reporting period.

2. Inclusion of Carbon Neutrality Factor (CNF)

The draft introduces a CNF—discounts on declared emissions for cleaner fuels and advanced powertrains:

Petrol cars running on ethanol blends E20 to E30 receive an 8% emission discount.
CNG vehicles get a 5% discount, increasing if blended with compressed biogas.
Flex-fuel ethanol vehicles and strong hybrids potentially enjoy up to 22.3% emissions discount.

This mechanism incentivizes cleaner fuel blends and encourages manufacturers to introduce flex-fuel and strong hybrid variants.

3. Retention of Multipliers for EVs and Strong Hybrids

The norms retain existing volume derogation factors—multipliers that count electric cars (EVs) as three vehicles and strong hybrids as two, in fleet-wide average calculations. This measure continues encouraging electrification and hybrid development while allowing strong hybrids to maintain compliance advantages.

4. Enhanced Testing and Reporting Procedures

Starting April 2026, manufacturers must report emissions and fuel consumption data based both on the Modified Indian Driving Cycle (MIDC) and Worldwide Harmonised Light Vehicles Test Procedure (WLTP), ensuring global consistency and accuracy.

Industry Perspectives: Opportunity and Debate

Support from Small Car Manufacturers

Maruti Suzuki, the market leader in India’s small car segment, welcomed the concession, emphasizing:

The leniency addresses technological limits inherent in small petrol cars.
It preserves the affordability and accessibility that millions of Indian consumers rely upon.
It provides room for continued innovation without setting unattainable targets.

Models like the Alto K10, Wagon R, S-Presso, Celerio, and Ignis stand to benefit directly from the relaxation.

Concerns from Larger OEMs and Environmental Advocates

However, some industry players, including Tata Motors and Mahindra & Mahindra, caution that:

Favoring small cars could create market distortions, disadvantaging midsize and premium automakers.
The relaxation might slow the transition to electric vehicles and alternative fuels by reducing urgency.
Environmental groups worry the rule change may dilute India’s climate action efforts.

The ongoing debate reflects the complexity of balancing economic realities with sustainable development goals.

Consumer and Market Implications

Pricing and Product Strategy

The relaxed norms could stabilize prices for small cars amidst rising input costs. Manufacturers may gain flexibility in balancing fuel efficiency with vehicle performance and safety features, potentially enriching product variants.

Accelerated Transition to Cleaner Fuels

The CNF incentivizes blending ethanol and promotes CNG and flex-fuel awareness, which can significantly reduce vehicular emissions without full electrification, offering a pragmatic path for India’s energy mix diversification.

Environmental and Regulatory Balance

The regulations aim to achieve dual outcomes:

Support continued penetration of small, affordable cars crucial for first-time buyers and urban commuters.
Preserve momentum toward cleaner fuels, strong hybrids, and EVs through multipliers and carbon neutrality credits.

India’s regulatory approach aligns better with international standards that differentiate requirements by vehicle size and purpose.

Timeline and Future Outlook

The revised draft is open for stakeholder comments for 21 days before finalization.
Final rules come into effect from April 1, 2027, extending through 2037, giving manufacturers a clear compliance horizon.
Ongoing incentives for electrification and alternative fuels complement the revised CAFE structure, steering India’s auto sector toward sustainable growth.

Frequently Asked Questions (FAQs)

Q1: What qualifies as a “small car” under the new draft?
Answer: Petrol vehicles up to 909 kg unladen weight, ≤1,200 cc engine, and length ≤4,000 mm.

Q2: How much additional CO₂ reduction credit can small cars claim?
Answer: Up to 3 gm/km beyond technology-based efficiency, capped at 9 gm/km cumulatively.

Q3: What is the Carbon Neutrality Factor (CNF)?
Answer: A discount on declared carbon dioxide emissions for vehicles using cleaner fuels or flex-fuel and strong hybrid technologies.

Q4: How will electric vehicles be treated under these norms?
Answer: EVs continue counting as three cars in fleet calculations; strong hybrids remain at a factor of two.

Conclusion: A Thoughtful Step Toward Balanced Mobility Policies

The proposed relaxation of fuel-efficiency norms for small cars signals India’s commitment to balancing regulatory ambition with market realities. By recognizing the limited fuel-saving potential of light petrol vehicles, the draft permits small car makers flexibility while maintaining overall environmental integrity through incentives for cleaner technologies.

This nuanced policy framework supports continued access to affordable mobility for millions of Indian consumers while underpinning the acceleration of electrification and greener fuel adoption. As discussions continue and final rules emerge, manufacturers, policymakers, and consumers alike will watch closely for how this balance shapes India’s automotive future.