CAFE-3 norms: Small cars face steep price hikes as PMO calls meeting to finalise draft proposals

Government weighs CAFE-3 framework while industry raises affordability concerns over tougher small car emission norms
| Photo Credit:
BABU

The Prime Minister’s Office (PMO) is set to finalise the draft proposals for the next phase of Corporate Average Fuel Efficiency (CAFE-3) norms. A meeting has been convened to give final touches to the proposals by the Principal Secretary in the PMO, Shaktikanta Das, on Monday.

While an inter-ministerial group submitted a nearly finalised draft to PMO Advisor Tarun Kapoor on February 25, sources indicated that a more detailed presentation has been requested for Monday’s meeting.

Sources aware of the developments told businessline that representatives from the Bureau of Energy Efficiency (BEE) under the Ministry of Power (MoP), the Ministry of Road Transport & Highways (MoRTH), the Ministry of Heavy Industries (MHI) and the Ministry of Petroleum and Natural Gas (MoPNG) will be part of this high-level meeting at the PMO where the ongoing debate over small and big cars is expected to take centrestage once again.

This time, the proposals consider two approaches for small cars: a technology derogation allowing up to 9g CO₂/kg of emissions at a cost of ₹15,000 for FY2028-30, or a more stringent approach costing between ₹32,000 and ₹40,000 starting in FY2031-32, an official privy to the details told businessline.

The BEE, in September 2025, released a revised draft of the CAFE-3 standards for four-wheelers, which was expected to come into effect from April 1, 2027, until March 31, 2032. But there have been revisions since then, especially concerning small cars.

In the September, 2025 draft, the slope (as per formula) was set at 0.002 litres/100km per kg with a reference weight of 1,170kg. But, in the revised draft, the slope has been lowered to 0.00154 litres/ 100km per kg, further declining to 0.00128 litres/ 100km per kg in 2031-32. But the reference weight is updated to 1,229kg, which, according to experts, does not significantly alter the outcome.

In its upcoming submission, the PMO will review the added differential cost metrics, which outline the financial impact of implementing various CO₂ mitigation technologies.

However, industry veterans argue that these proposals may mislead the PMO by introducing stringent norms for small cars, a regulatory approach that is not followed in developed markets such as Europe, China, Japan, or South Korea.

“The differential cost of ₹15,000 would translate to nearly ₹50,000-60,000 per car at the showroom. That would be passed on to the customers. That affects affordability. Prices of small cars could rise again to the pre-GST 2.0 reforms era ,” said an industry veteran.

He added that this logic brings the proposed standards ‘back to square one,’ effectively penalising small, entry-level cars with stringent norms while allowing larger, fuel-heavy utility vehicles to benefit under the CAFE-3 framework.

Published on March 15, 2026