🔍 Executive Summary

India is preparing to revise its fuel efficiency norms under the Corporate Average Fuel Economy (CAFE) III framework, slated for implementation in April 2027. For the first time, these norms may be linked to car size or weight, especially benefiting smaller, budget cars under 1,000 kg. The shift, reportedly influenced by major automakers like Maruti Suzuki, is aimed at reviving the struggling small car segment. While the proposal may aid affordability and ease industry pressure, it raises questions about India’s broader electrification goals and environmental commitments.

🚦 Policy Shift at a Glance

✅ What’s Changing?

• From: Uniform fuel-efficiency targets across all mass-market passenger vehicles.

• To: Differentiated targets based on size/weight, especially relaxed for small cars (<1,000 kg).

🎯 Goal:

To revive sales of budget cars, which have been in steady decline due to rising costs, stringent regulations, and the growing popularity of SUVs.

🕰️ Timeline of Key Developments

🔍 Policy Matrix: CAFE II vs Proposed CAFE III

🔧 Why This Shift? Understanding the Push

1. Shrinking Market for Small Cars

• Once dominant, small cars like the Maruti Alto and Wagon-R are losing ground.

• Share of compact cars in Maruti’s portfolio dropped from over 65% to under 50% in recent years.

• Rising safety, emissions, and technology costs have made these cars less affordable for budget-conscious buyers.

2. Maruti Suzuki’s Role

• Maruti has actively lobbied for differentiated norms, highlighting the cost burden of CAFE-II on low-margin cars.

• Its fleet includes 10 models under 1,000 kg, which would directly benefit.

3. Government's Dilemma

• Aims to balance affordability, local production, and climate targets.

• Easing norms for small cars may protect jobs and domestic sales.

🚗 Case Study: Maruti Alto under CAFE Norms

• Curb Weight: ~850 kg

• Current Challenge: Must comply with the same CO₂/km target as heavier sedans or compact SUVs.

• Post-Cafe III (Expected): Relaxed limit for <1,000 kg cars may save compliance costs and delay EV adoption pressure.

⚖️ Stakeholder Perspectives

🌍 Global Context: What Other Countries Are Doing

• U.S.: Uses footprint-based CAFE standards; allows bigger vehicles more relaxed targets (criticized for encouraging size bloat).

• EU: Uses fleet-wide CO₂ averages; very aggressive electrification targets and penalties.

• Japan: Mixes weight-based and engine-displacement metrics in its fuel economy standards.

India’s proposed shift would make it more like Japan, but diverge from EU’s strict EV push.

⚠️ Risks and Trade-Offs

🟢 Advantages

• Supports affordability in the budget-car segment.

• Helps automakers maintain ICE lineups with less costly compliance upgrades.

• Reduces immediate pressure on EV infrastructure for low-income buyers.

🔴 Concerns

• Slows down the transition to electric vehicles.

• May reduce pressure on innovation for fuel economy.

• Risks perception of policy capture by large incumbents (Maruti, Hyundai).

• Could cause conflict within the industry over equity in policy impact.

🔭 What to Watch For

1. Precise definition of “small cars” — weight, footprint, or engine size?

2. Will EV mandates remain intact for all segments?

3. How will rival automakers react to Maruti’s influence?

4. Policy durability — will it last, or be reversed under environmental pushback?

🧠 Conclusion

India's potential move to link fuel norms to vehicle size reflects a pragmatic attempt to revive the affordable car segment while grappling with the costs of rapid electrification. While it may offer short-term relief to automakers and consumers, the long-term trade-offs—particularly in emissions and innovation—require careful calibration. The success of this policy depends on whether it balances equity, efficiency, and environmental integrity in the evolving landscape of Indian mobility.