As India strides towards its 2070 net-zero ambition, a significant roadblock has emerged within its automobile sector. The industry remains sharply divided over the government's proposed fuel efficiency and emissions regulations, casting a shadow over the timely implementation of new norms scheduled for April 2027.
The Core of the Conflict: CAFE 3 Norms and Small Car Concessions
The heart of the disagreement lies in the draft CAFE 3 (Corporate Average Fuel Efficiency) norms, proposed by the Bureau of Energy Efficiency (BEE) in September 2025. These regulations aim to reduce fleet-wide carbon dioxide emissions by encouraging the production of hybrids and electric vehicles (EVs). However, a contentious provision offers a 3-gram advantage in CO2 emission calculations for smaller cars—specifically those under four metres in length, weighing less than 909 kg, and with engines below 1200 cc.
This clause is widely perceived as favouring market leader Maruti Suzuki India Ltd., known for models like the Alto and Wagon-R. Rivals, notably Tata Motors Passenger Vehicles Ltd., have strongly protested. Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicles and President of the Society of Indian Automobile Manufacturers (SIAM), argued in November 2025 that there is "no justification" for such relaxations. He warned that using weight as a defining criterion could incentivize unsafe vehicle designs, conflicting with national safety imperatives.
Broader Implications for Climate Goals and Market Evolution
The discord extends beyond passenger cars. A parallel debate is ongoing for heavy commercial vehicles, where the second phase of fuel efficiency norms (CSFC) is also set for April 2027. Truck manufacturers are advocating for a new, locally-developed testing tool called Bharat Vecto, which simulates real-world Indian road conditions. However, with this tool still under development, its adoption could delay the entire implementation timeline.
Such delays are not an option, as emphasized by Road Transport Minister Nitin Gadkari. India plans to align its next phase of emission standards—Bharat Stage VII, based on Euro 7 norms—with global timelines, starting phased implementation from November 2026. The ongoing rift jeopardizes this synchronization and India's broader climate objectives, including reducing its massive oil import bill.
The stakes are particularly high now because India's clean mobility transition is gaining real momentum. Government data shows over 2 million EVs were sold in 2025, up from 1.9 million the previous year. The EV market, valued at around $54 billion, is projected to double by 2029. The CAFE 3 norms are crucial to institutionalizing this shift. Amit Bhatt of the International Council on Clean Transportation (ICCT) notes that while the draft targets 10-11% EV sales by 2030, industry commitments from major players like Tata Motors, Mahindra, and Suzuki point to a potential 20% share.
A Sector at a Crossroads
The debate also reflects a deeper market transformation. Consumer preference is shifting away from traditional small cars towards larger, premium vehicles like SUVs. SIAM data reveals a stark 71% decline in sales of small cars (under 3.6 metres) over six years, from 460,772 units in FY19 to just 133,397 in FY25. This trend puts manufacturers who have pivoted to larger vehicles at odds with proposals seen as protecting the small car segment.
As 2026 unfolds, the government faces the critical task of balancing diverse industry interests with uncompromising environmental targets. The final shape of the CAFE 3 and CSFC norms will not only determine India's regulatory path but also signal whether the world's third-largest auto market can present a united front in its fight against climate change.
