India's automobile manufacturers are mounting a significant lobbying effort, urging the government to relax upcoming stringent fuel efficiency regulations and expand incentives for electric vehicles (EVs). This push comes even as the industry itself remains split over proposed concessions for small cars, setting the stage for crucial negotiations that will define the country's automotive landscape for the next decade.
Industry Seeks Relief from "Steep" CAFE-3 Targets
At the heart of the dispute is the draft of the Corporate Average Fuel Efficiency (CAFE) norms, known as CAFE-3, released in September. These rules, set for implementation from April 2027, propose tightening fleet-wide emission targets, introducing annual improvement milestones, and revising the credit system for cleaner vehicles like EVs and hybrids.
The Society of Indian Automobile Manufacturers (SIAM) is preparing to formally present the industry's concerns to the Union Ministry of Heavy Industries. According to sources familiar with the discussions, a key demand is for additional "super-credits" for zero-emission vehicles and a re-examination of the proposed annual targets, which carmakers argue are too aggressive and operationally difficult to achieve.
The September draft requires carmakers to reduce average fuel consumption from 3.726 litres per 100 km in 2027 to 3.013 litres per 100 km by 2032. An industry executive highlighted the challenge, stating that such steep annual improvements are hard to manage for manufacturers using diverse technologies, impacting investment cycles.
Internal Rift Over Small Car Concessions
While united on seeking broader relief, the auto industry is divided internally. A major fault line has emerged over proposed relaxations for small cars weighing under 909 kg and measuring less than four metres in length.
This concession disproportionately benefits Maruti Suzuki, India's top-selling carmaker, whose lineup is rich in compact models like the Alto. Maruti has argued that the norms unfairly penalize small, inherently fuel-efficient vehicles. However, other automakers, especially those with portfolios skewed towards larger and premium vehicles, have resisted this special treatment.
The draft CAFE-3 norms propose a relaxation of up to 9 grams of CO2 per kilometre for these small cars when calculating a company's fleet-wide emissions.
Debate Intensifies Over EV Super-Credits
A critical point of contention is the government's revised proposal for "super-credits," which count cleaner vehicles as multiples to incentivize their production. Under the September draft, each EV sold would count as three units, a reduction from a more generous four units suggested by the Bureau of Energy Efficiency (BEE) in June 2024.
The industry contends that this downward revision significantly lowers the incentive for accelerating EV adoption. The earlier BEE proposal also offered higher credits for other technologies, including five units for hydrogen fuel cell vehicles and two for plug-in hybrids.
Experts warn that the government must balance ambition with feasibility. Saket Mehra of Grant Thornton Bharat noted the proposed norms demand a 63% improvement over CAFE-2, placing substantial pressure on product development and supply chains. Meanwhile, Sharif Qamar of TERI cautioned against following Europe's recent rollback of strict 2035 fossil-fuel car bans, a move that could hurt long-term competitiveness against global rivals, particularly from China.
The negotiations unfold against the backdrop of a shrinking small car market, with sales plummeting from 4.6 lakh units in FY19 to just 1.33 lakh units in FY25. The outcome of these discussions will critically influence vehicle affordability, technology investment, and India's ability to meet its climate commitments while nurturing a competitive auto sector.
