The government has notified the next phase of corporate average fuel efficiency norms, known as CAFE III, which will make new cars sold in India progressively more fuel-efficient over the next five years.

Under the notified rules, the fleet-average fuel consumption benchmark will tighten from 3.996 litres per 100 km in financial year 2028 to 3.3273 litres per 100 km by FY32, according to Autocar Professional and The Economic Times.

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

Manufacturers that miss the targets will record debits in a credit passbook system, with credits tradable between companies. A buyout option allows payment of 2,500 rupees per gram of CO2 per km in FY28, rising to 4,500 rupees by FY32. Credits can be traded each year between October 1 and 31.

The move has been welcomed by the auto industry. SIAM president Shenu Agarwal said CAFE III gives industry a clear roadmap with the right level of stretch, while Tata Motors, Hyundai and component makers said the norms will push electrification and flex-fuel adoption.