Small Car Emission Relaxations Remain Under Discussion for Upcoming CAFE-III Norms
Government officials have confirmed that proposals to provide emission target relaxations for small cars under India's next phase of corporate average fuel efficiency regulations remain actively under consideration. The development comes as automakers prepare for stricter environmental standards set to take effect in the coming years.
Government Confirms Ongoing Discussions
Power Secretary Pankaj Agarwal has clarified that the proposal for easier emissions targets for small cars has not been dropped entirely from discussions surrounding the CAFE-III norms. Speaking at the launch of a Niti Aayog panel report, Agarwal explained that the relaxation would be proposed "through a different way by moderating the slope."
The slope refers to a Cartesian graph containing a single line used to set emissions targets for automobile manufacturers. By easing this slope, regulators can effectively relax the targets for specific vehicle categories, potentially benefiting smaller, more fuel-efficient cars.
Industry Division Over Small Car Considerations
The proposal has already created significant division within India's automotive industry regarding whether small cars deserve special consideration under the third iteration of CAFE norms. These regulations are scheduled to come into force in April 2027 and are expected to be formally notified soon.
Any relief provided to small cars would represent a substantial boost for Maruti Suzuki India Ltd, the country's largest passenger car manufacturer. The company has consistently argued that such relaxations are essential to keep small cars viable in the Indian market, where consumer preferences have increasingly shifted toward larger vehicles.
Niti Aayog Report Advocates for Smaller Vehicles
A transport decarbonization report from Niti Aayog has specifically recommended that new fuel-efficiency regulations should actively promote the adoption of small, entry-level cars. The report argues these vehicles are more efficient than larger models and represent a significant opportunity for India's transportation sector.
"CAFE should incentivize the adoption of light-weight, fuel-efficient, smaller entry-level cars as is increasingly the case in leading global markets," the report stated. It further emphasized that smaller cars provide multiple benefits:
- Greater affordability for first-time buyers upgrading from two-wheelers
- Higher fuel efficiency compared to larger vehicles
- Lower overall emissions
- Reduced pressure on traffic infrastructure and parking
The Niti Aayog panel included representatives from multiple government ministries along with industry representation from the Society of Indian Automobile Manufacturers (SIAM).
Specific Carve-Out Proposals and Industry Response
A September 2025 draft of the CAFE-III norms included a specific carve-out for cars weighing less than 909 kilograms, proposing a 3-gram advantage in calculating carbon dioxide emissions. However, this initial proposal failed to satisfy either side of the divided automotive industry.
Maruti Suzuki, which controls approximately 40% of India's car market, had sought a more substantial carve-out for small cars weighing less than 1,000 kilograms. The company argues these vehicles are less polluting and more fuel efficient compared to larger sports utility vehicles that have gained popularity in recent years.
Meanwhile, other automakers that have shifted their portfolios toward SUVs and electric vehicles opposed any special benefits for small cars. This disagreement has created a significant split within the industry as companies prepare for the new regulations.
Market Context and Broader Implications
The discussion occurs against a backdrop of declining small car sales in India. According to SIAM data, the market share of smaller hatchback cars has fallen dramatically from nearly 50% in 2019 to just about 20% in 2025.
The CAFE-III norms will determine strategic direction for India's automobile industry, which contributes approximately 7.1% to the country's total economic output and employs about 32 million people. These regulations are expected to shape industry decisions for at least the next five years, making the current discussions particularly significant for manufacturers, consumers, and environmental advocates alike.
As the April 2027 implementation date approaches, stakeholders across government and industry continue to debate the appropriate balance between environmental goals, consumer preferences, and manufacturing realities in India's evolving automotive landscape.
