The govt’s draft CAFÉ III 2027 notification balances automaker interests while pushing for faster EV adoption, a Nomura report states. It offers flexibility with 3-year compliance blocks but also signals a clear policy shift to electrification.
New CAFE III Draft Balances Interests, Pushes for Faster EV Adoption
The government’s latest draft notification on Corporate Average Fuel Efficiency III (CAFÉ III) 2027 strikes a balance between the interests of automakers while signalling a clear policy shift towards faster electrification of the passenger vehicle market, according to a report by Nomura.
The report said the revised CAFE III framework provides greater flexibility to original equipment manufacturers (OEMs) by assessing compliance over three-year blocks instead of every year. It stated, “In our view, the latest CAFE notification balances the interests of all stakeholders while making it clear that the policy direction is shifting towards faster electrification”.
Key Provisions and Timeline
Corporate Average Fuel Efficiency (CAFE) refers to government regulations that require automakers to meet a specific average level of fuel economy or carbon dioxide (CO₂) emissions across their entire fleet of vehicles sold in a year Under the draft notification published by the Ministry of Power on Thursday, compliance will be evaluated over FY28-30 and FY30-32, giving manufacturers additional time to phase in electric vehicle (EV) launches.
Ministry of Power stated that “Corporate Average Fuel Economy 2027 Norms (CAFE-III) are proposed to be applicable to M1 category passenger vehicles manufactured or imported for sale in India during 2027-28 to 2031-32”.
According to Nomura, the latest notification makes it clear that the government’s policy direction is increasingly focused on accelerating EV adoption while accommodating industry concerns. The brokerage said it had recently highlighted that EV adoption in India is approaching an inflection point, supported by strong underlying demand, expanding model availability, a more supportive policy framework and the recent increase in fuel prices. Nomura also expects passenger vehicle EV penetration in India to rise to 8.8 per cent by FY28 and further to 12.7 per cent by FY30.
Revised Rules and New Technologies
The July 2026 draft has introduced several key changes compared with the September 2025 draft. The super-credit for strong hybrid vehicles has been reduced from 2.0x to 1.6x, while the explicit 3g CO₂/km concession available for small cars has been removed. At the same time, the government has introduced 12 new derogation technologies, each offering a benefit of 1g CO₂/km, with the total benefit capped at 9g CO₂/km (0.3795 l/100km). According to Nomura, these technologies have the potential to reduce the EV mix requirement by 2-4 per cent across OEMs.
Penalties for Non-Compliance
The report also pointed out that manufacturers failing to meet the prescribed norms will be able to purchase compliance credits from the Bureau of Energy Efficiency (BEE) at Rs 2,500 per g CO₂/km in FY28, with the price increasing to Rs 4,500 per g by FY32.
Broader Impact and Market Dynamics
Nomura said the recently announced Delhi EV policy further strengthens the electrification trend. The policy provides 100 per cent road tax exemption for electric vehicles priced below Rs 3 million until March 2030, bans registration of new petrol two-wheelers from April 2028, and permits only electric three-wheelers from January 2027. The brokerage believes that if other states adopt similar policies, electrification of the automobile sector could accelerate further.
The report added that the new CAFE III framework allows OEMs to make use of various derogation technologies to meet emission norms. Since compliance will be assessed over three-year blocks rather than annually, manufacturers with back-loaded EV launches will have greater flexibility in meeting the standards.
However, Nomura said the CAFE 2027 framework could create a structurally uneven playing field, disproportionately disadvantaging sub-scale OEMs that lack credible domestic EV pipelines and increasing compliance risks for such players. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)