India's auto sector closes 2025 fractured as fuel-efficiency fight rolls on

NEW DELHI: India's automobile industry remains deeply divided over key government proposals to improve fuel efficiency and cut vehicular emissions, making consensus hard to build ahead of the new norms taking effect in April 2027.

The government's draft CAFE 3 norms (corporate average fuel efficiency), which aim to slash fleet-wide carbon dioxide emissions by pushing manufacturers to make more of hybrids and electric vehicles (EVs), proposed big concessions for smaller, lighter cars.

Cars shorter than four metres, weighing less than 909 kg and powered by sub-1200 cc engines will get an advantage of 3 grams while calculating carbon dioxide (CO2) emissions for the CAFE 3 rules, the Bureau of Energy Efficiency (BEE) proposed in September.

This was seen as a favour to the country's biggest carmaker Maruti Suzuki India Ltd, a market leader in small cars which sells popular brands such as Alto and Wagon-R, prompting protests from rivals such as Tata Motors Passenger Vehicles Ltd.

Shailesh Chandra, managing director of Tata Motors Passenger Vehicles—and president of industry lobby Siam (Society of Indian Automobile Manufacturers)—said in November that there was “no justification" for any relaxation in the next phase of emission norms for small cars.

He further warned that redefining small cars based on weight rather than the current classification based on length and engine size would incentivize unsafe designs.

“We do not support any move to include weight in the definition of small car. Such an arbitrary criteria would conflict with one of the country's most critical imperative that is safety," Tata Motors’ Chandra said.

Similarly, the second phase of fuel efficiency norms for heavy commercial vehicles such as trucks and buses is set to be implemented from 1 April 2027. The Bureau of Energy Efficiency is keen on pressing ahead with the existing Constant Speed Fuel Consumption (CSFC) test to measure fuel efficiency of trucks, while manufacturers are pitching for a homegrown testing tool that is still being developed.

The discord could lead to delays in implementation of emissions norms if not resolved expeditiously, potentially hurting India's climate goals and its ambitions to cut oil import bill.

India plans to align its next phase of vehicle emission and fuel efficiency standards with global timelines, as part of its drive towards becoming a net-zero carbon economy by 2070, road transport and highways minister Nitin Gadkari said in September. He was referring to Bharat Stage VII emission norms, India's next level of vehicular emission standards that will be based on the European Union's Euro 7 norms, which will start getting implemented in phases from November 2026.

Fuel efficiency or fuel consumption norms are built to nudge vehicle manufacturers to make more fuel-efficient vehicles, which typically emit less carbon dioxide as they burn less fuel to travel the same distance. These norms set an average fleet emissions target, which each manufacturer has to meet. This means if a company sells 100 cars, each with emissions of 100 grams of carbon dioxide per kilometre, the average fleet emissions will be 100g of CO2/km. But if 10 of those cars are electric, meaning zero-emission vehicles, the average fleet emissions drop.

This is why the government incentivizes manufacturers to sell cleaner vehicles through schemes such as production-linked incentive schemes for auto (PLI-Auto) and PM E-Drive to expand the adoption of clean mobility in India—the world's third-largest automobile market after China and the US.

Industry experts said that this time around, CAFE norms are crucial as India’s clean mobility ambitions have already taken root, with sales of hybrid and EVs rising over the years.

The revised CAFE draft targets around 10-11% of total sales to be EVs by 2030, said Amit Bhatt, India director of the International Council on Clean Transportation (ICCT), a global think-tank. “However, based on the industry’s own voluntary commitments—such as Suzuki aiming for 15% EV sales, and Tata Motors and Mahindra & Mahindra targeting 30% by 2030—the combined trajectory points to roughly 20% EV sales by 2030," he said.

The third iteration of CAFE norms and the second iteration of CSFC norms will come into force in April 2027, meaning the tale of India tightening its fuel efficiency norms has an end-date. But who are the leading actors in this story?

The first draft of CAFE 3 norms came from the Union power ministry’s Bureau of Energy Efficiency in June 2024. Carmakers requested benefits for EVs, hybrids, and even flex-fuel vehicles—those that run on more than one fuel, usually petrol blended with ethanol—in December that year.

But later, the country’s largest carmaker by sales, Maruti Suzuki, broke ranks, demanding a complete exemption from CAFE norms for small cars weighing less than 1,000kg.

This created a rift between the country's carmakers, as others do not manufacture cars in that category, and have pivoted significantly towards making larger, sports utility vehicles in response to consumers' evolving preference for premium cars.

India’s price-sensitive market has long loved small cars. But a wave of premiumization has swept them away in recent years. Data from Siam showed that sales of small cars—under 3.6 metres in length—fell from 460,772 units in FY19 to 152,262 in FY24 and 133,397 in FY25, a 71% drop over six years, Mint reported on 5 June.

Even as the debate has drawn attention in 2025, the new year will reveal how the government weighs the industry’s recommendations—and how companies adapt to the new fuel-efficiency regime.

“Given that automakers have already made investments aligned with their voluntary targets, a lower target under CAFE could have serious implications for their EV investment plans. Therefore, the CAFE 3 norms should reflect both India’s policy ambition and the industry’s stated direction of travel," said Bhatt of ICCT.

India is tightening its fuel efficiency regulation at a time when the country’s clean mobility market is growing, and adoption of EVs is rising. Market intelligence firm Mordor Intelligence stated the country’s EV market is currently valued at about $54 billion, and is expected to double by 2029.

Also, more than 2 million EVs were sold in the country in 2025, up from about 1.9 million the previous year, according to the government’s Vahan portal.

The deliberations over CSFC norms—similar to CAFE, but for trucks—have played out similarly. Truck makers have repeatedly asked the government to use Bharat Vecto, a little-known test, for testing the fuel consumption of trucks. But this tool is still being developed jointly by the ministry of road transport and highways (MoRTH) and the Automotive Research Association of India (ARAI), and there is certainty on when it would be ready for launch.

This means if truck makers' proposal is accepted, the implementation of CSFC norms will be delayed.

Bharat Vecto stands for Bharat Vehicle Energy Consumption Calculation Tool, which simulates the real-world conditions of Indian roads and tests the fuel efficiency of such trucks. It's based on the European vehicle energy consumption calculation tool (Vecto).

On the other hand, in the CSFC test, a vehicle is run at 40 kmph and 60 kmph to measure the fuel efficiency of the vehicle on test tracks. However, the auto industry believes that this cannot account for real-world situations in India where roads and temperatures vary heavily.

Delays in implementation of the stiffer emission norms are not an option, Gadkari has emphasized. At the annual Siam convention this year, he said that India will remain aligned with global timelines on emission regulations.

While the government's emission goals are laudable, it won't be easy to resolve differences between automakers as we enter 2026.