Automakers Agree to CAFE-III Fuel Efficiency Targets; Critics Flag Compliance Loopholes

India's automakers have unanimously agreed to a new fuel efficiency and emissions reduction framework proposed by the Bureau of Energy Efficiency (BEE), the standards-setting body for the sector. The proposed Corporate Average Fuel Efficiency-III (CAFE-III) cycle will run from April 2027 to March 2032 and tightens the headline target from about 113 grams of CO2 per kilometre under CAFE-II to 77 g/km by 2031-32.

The agreement follows a controversy late last year over differences between Maruti Suzuki, which dominates the small-car segment, and other manufacturers. The earlier draft had a carve-out for small cars (about 14-15% of passenger vehicle sales) that delayed cleaner-fuel adoption, while larger carmakers faced more stringent targets, putting them at a pricing disadvantage. The explicit small-car exemption has now been removed.

However, several flexibility provisions in CAFE-III have raised concerns among environment policy watchers. Manufacturers can earn credits for higher ethanol blending (E20 to E85-compatible vehicles) and for incremental efficiency technologies such as start-stop systems, regenerative braking and tyre pressure monitoring. While useful, these are marginal improvements that allow manufacturers to meet targets without a structural shift to electric mobility.

The BEE has also proposed super-credits, where some technologies count multiple times — a battery electric vehicle could count as three vehicles. Combined with credit banking and trading, this enables manufacturers with an early technological lead to accumulate surplus credits and sell them to laggards. Compliance is also assessed over three-year blocks rather than annually, reducing immediate pressure.

Transport is India's third-largest source of greenhouse gas emissions, so the design of CAFE-III matters for climate goals. Critics argue that the headline number is ambitious but the flexibility mechanisms could weaken the signal to electrify, slowing the transition that India needs to meet its net-zero targets.

Exam angle: Important for environment / climate policy questions. Remember the CO2 target (77 g/km by 2031-32), the cycle period (April 2027 to March 2032), the issuing body (BEE), and the flexibility mechanisms — super-credits, credit banking and three-year compliance blocks — that critics flag as loopholes.