India’s Carmakers on Edge as Tougher Fuel-Efficiency and Emission Rules Loom

Summary: The auto industry says delays in final norms risk tight compliance windows and costly upgrades.

India’s major carmakers are feeling the pressure as the government nears finalising tougher fuel-efficiency and emission standards that aim to drastically cut vehicle carbon output over the next decade.

At the centre of industry concern is a proposed update to the Corporate Average Fuel Efficiency (CAFE) norms — a regulatory system that sets fleet-wide targets for average emissions across all passenger vehicles a company sells. Carmakers say they need clearer rules and more time as the compliance window narrows, especially with the next phase of these norms set to take effect from April 2027.

Under the proposed CAFE-III rules, manufacturers would have to lower the average carbon dioxide emissions of their fleets to about 88.4 grams per kilometre by March 2028, a roughly 21 per cent real-world reduction from existing targets. By March 2032, the target tightens even further, requiring cuts of 37 per cent or more.

Automakers say this represents the largest mandated emissions drop the industry has faced over five years. They worry that without formal notification of the rules soon, they’ll be left with less than 15 months to make key adjustments to fleets, engines and technology roadmaps. “We are very close to 2027, and yes, it would be a concern if it were delayed any further,” said a senior executive at one major manufacturer, stressing the need for certainty in planning and investment.

Much of the industry’s anxiety stems not just from the stringency of the targets, but from the timing of their finalisation. The first and second sets of CAFE norms were unveiled well in advance, giving manufacturers about two to seven years’ notice to prepare. In contrast, the delay this time around — with a final notification yet to be issued — could compress the window for compliance and make strategic decisions harder, especially for smaller companies and those heavily reliant on internal combustion vehicles.

Some carmakers have also expressed concerns about how the new norms treat small petrol cars. Draft proposals at one point included weight-based exemptions that might have eased compliance for lighter vehicles, but other companies argued this would unfairly benefit specific players and distort competition. To maintain an equal playing field, business groups have reportedly urged reconsideration of such regulations.

Auto analysts note firms already struggled with earlier fuel-efficiency targets: in past years, several manufacturers fell short of compliance under the preceding CAFE-II norms and faced penalties, highlighting the difficulty of rapid technological adaptation in a competitive market.

Despite the challenges, the government appears poised to finalise the CAFE-III framework within days, according to road transport authorities, which would give the sector a clearer regulatory horizon.

For the Indian auto industry, which is racing to balance emissions, fuel efficiency, electrification, and affordable products for mass buyers, this next chapter of fuel-norm evolution could define both investment strategy and product direction well into the 2030s.