The Ministry of Power, in consultation with the Bureau of Energy Efficiency (BEE), has released a draft notification for the Corporate Average Fuel Economy (CAFE) 2027 regulations, marking the next phase of India’s efforts to improve fuel efficiency in passenger vehicles. Published on July 16, 2026, the draft proposes new fuel economy standards for M1 category passenger vehicles and is set to come into effect from April 1, 2027. The framework will remain in force for five years, covering the period up to the financial year 2031-32. The government has invited comments, suggestions, and objections from stakeholders and the public within 21 days of the notification’s publication.
The proposed regulations aim to improve energy efficiency in the transport sector while encouraging the adoption of cleaner and more fuel-efficient vehicle technologies. As India’s vehicle market continues to expand, the government intends to reduce fuel consumption and emissions through a technology-neutral regulatory approach. Unlike earlier CAFE norms that mainly focused on conventional internal combustion engine vehicles, the new framework recognizes a broader mix of vehicle technologies and fuels.
Under the draft regulations, manufacturers will be required to meet fleet-wide fuel consumption targets based on the sales-weighted average fuel consumption of their passenger vehicle fleet. The calculation will use petrol-equivalent fuel consumption and consider the unladen weight of each vehicle. Testing will continue under the Modified Indian Driving Cycle (MIDC) during the transition period, while manufacturers must also submit performance data based on the Worldwide Harmonized Light Vehicles Test Procedure (WLTP), supporting India’s gradual move toward globally accepted testing standards.
A key feature of CAFE 2027 is the introduction of a credit and debit system for compliance. Manufacturers whose fleet performs better than the prescribed fuel consumption targets will earn compliance credits, while those falling short will accumulate debits. These records will be maintained in a centralized compliance account known as a passbook.
The draft also introduces several incentives to promote cleaner vehicle technologies. Battery electric vehicles, plug-in hybrid electric vehicles, range-extended electric vehicles, strong hybrid vehicles, and flex-fuel ethanol vehicles will receive super credits through volume derogation factors. In addition, the proposed Carbon Neutrality Factor will recognize the lower lifecycle carbon emissions associated with renewable fuels such as ethanol-blended petrol and compressed biogas.
Manufacturers will also be allowed to claim additional fuel consumption benefits for installing proven energy-saving technologies such as automatic start-stop systems, regenerative braking, tyre pressure monitoring systems, and LED exterior lighting. These improvements can contribute up to a maximum reduction of 9.0 g CO2/km. Companies producing or importing fewer than 1,000 passenger vehicles annually will remain exempt from the fleet compliance requirements.
To provide greater flexibility, the framework allows manufacturers to voluntarily pool compliance credits or trade them with other companies. Those unable to meet their targets may also purchase credits through a BEE-managed buyout mechanism. The proposed buyout price will increase from INR 2,500 per g CO2/km in FY2028 to INR 4,500 per g CO2/km by FY2032. Penalties for non-compliance will be imposed after fixed compliance periods. The collected funds will be credited to the Central Energy Conservation Fund, with 90% distributed to state governments based on vehicle sales. The Ministry of Road Transport and Highways will oversee testing procedures and compliance calculations under the proposed regulations.
