The proposal of relaxing emission targets for small cars under the next phase of corporate average fuel efficiency, or CAFE-III, norms is still being discussed, power ministry secretary Pankaj Agarwal told Mint on Tuesday.
“The relaxation for small cars has not been dropped. It will be proposed through a different way by moderating the slope,” said Agarwal on the sidelines of the launch of a report by a Niti Aayog panel that called for promoting entry-level cars in emission norms.
The slope refers to a Cartesian graph containing a single line being used to set emissions targets for carmakers. Easing this slope can help relax the targets.
The proposal has already divided the industry on whether small cars deserve special consideration under the third iteration of the CAFE norms, set to come into force in April 2027 and are expected to be notified soon.
Any relief, however, would be a boost for India’s largest passenger carmaker, Maruti Suzuki India Ltd, which believes such relaxations are necessary to keep small cars viable in the country.
Niti Aayog report
The transport decarbonization report has recommended that new fuel-efficiency regulations should push the adoption of small, entry-level cars as they are more efficient than larger models.
“CAFE should incentivize the adoption of light-weight, fuel-efficient, smaller entry-level cars as is increasingly the case in leading global markets, while also accounting for the lifecycle emissions benefits and carbon sequestration potential associated with sustainable biofuels,” the report said.
It said smaller cars are an opportunity for India because they are more affordable, especially for first-time buyers upgrading from two-wheelers, and are fuel-efficient compared to larger cars. “The opportunity lies in deliberately promoting smaller, affordable cars for these first-time buyers, which can provide significant co-benefits in terms of higher fuel efficiency, lower emissions, and reduced pressure on traffic and parking.”
The panel, set up by think tank Niti Aayog, comprised an inter-ministerial committee with representatives from the ministries of road transport and highways, heavy industries, petroleum and natural gas, power, railways, and shipping, along with think tanks and industry representation from the Society of Indian Automobile Manufacturers (Siam).
Small-car carve-out
A September 2025 draft of the CAFE-III norms includes a carve-out for cars weighing less than 909 kg, proposing a 3 gramme advantage in calculating carbon dioxide (CO2) emissions.
Mint reported on 17 October 2025 that this draft pleased neither side of the split auto industry, as Maruti had sought a bigger slice while other automakers had opposed any such benefit for small cars. The auto industry was also displeased about the benefits given to electric vehicles under these norms.
Maruti Suzuki, which controls about 40% of the country’s car market, had sought a carve-out for small cars weighing less than 1,000 kg, since these vehicles are less polluting and more fuel efficient compared to larger sports utility vehicles (SUVs), which run on diesel and have seen a jump in consumer preference over the years.
Meanwhile, sales of small cars in the country have declined over the years. Siam data shows that the share of smaller hatchback cars has fallen from nearly half in 2019 to just about one-fifth in 2025.
Other automakers, which have started making more SUVs and rely more on pure electric vehicles in their portfolios to meet the norms, did not agree with this recommendation, splitting the auto industry.
CAFE 3 norms will determine the strategy for the automobile industry—which contributes about 7.1% to the country's total economic output and employs about 32 million people—for at least the next five years.
"Across the major automotive markets, small cars are afforded benefits under their respective countries' fuel economy and emissions norms. These benefits are formulated (through a piece-wise linear target line or parabola curve) in the calculation of carmaker’s emission targets," said Ashim Sharma, senior partner and group head at Nomura Research Institute (NRI) Consulting and Solutions.
"The European Union has a norm which sets emissions limits based on vehicle weight, with heavier cars required to meet stricter standards than lighter ones, which is a regressive mass-adjusted limit curve based on vehicle mass. This rule is beneficial for lighter vehicles," he added.