India has notified CAFE III, the next phase of fuel-efficiency rules for carmakers. Here is what the new norms mean for the industry and buyers.

What CAFE III is. Corporate Average Fuel Efficiency norms set a fleet-wide fuel consumption target for every carmaker. The phase tightens the benchmark from 3.996 litres per 100 km in FY28 to 3.3273 litres per 100 km by FY32.

How EVs are counted. Battery EVs and range-extended EVs count three times in the fleet average, plug-in and flex-fuel strong hybrids 2.5 times, conventional strong hybrids 1.6 times and flex-fuel vehicles 1.1 times.

What happens if carmakers miss. Companies that miss targets record debits in a credit passbook. Credits can be traded between carmakers each October, or bought out at 2,500 rupees per gram of CO2 per km in FY28, rising to 4,500 rupees by FY32.

Why industry welcomed it. SIAM, Tata Motors, Hyundai and component makers praised the clear roadmap, saying it gives the right level of stretch while pushing electrification and flex-fuel adoption.

What it means for buyers. Expect more hybrids, EVs and flex-fuel models in showrooms over the next five years, and steadily better mileage across new cars as manufacturers chase the targets.