Indian Auto Industry Warns of Impact from CAFE III Norms
India's proposed CAFE III emission norms, aiming for a 15% reduction in vehicle emissions by 2027, face strong resistance from automakers due to high compliance costs and a slowing auto market. While aligned with India’s net-zero goal by 2070, companies warn of rising vehicle prices and declining demand. Industry leaders call for extended deadlines, incentives, and infrastructure support to manage the transition to cleaner vehicles. The debate underscores the challenge of balancing environmental commitments with economic growth and consumer affordability in India's evolving auto sector.
Indian automakers are opposing the proposed CAFE III emission norms, set to take effect in 2027, citing high compliance costs and market challenges. The norms aim to reduce vehicle emissions by 15%, aligning with India’s net-zero target by 2070. Companies argue that stricter fuel efficiency standards could increase vehicle prices, impacting demand already weakened by a 6% sales drop in June 2025. The government is pushing for cleaner vehicles, but automakers seek relaxed targets and incentives to support the transition. Balancing environmental goals with economic realities remains a key challenge.
The Corporate Average Fuel Efficiency (CAFE) III norms require automakers to achieve a fleet-wide fuel efficiency of 4.7 litres per 100 km by 2027, compared to 5.5 litres under CAFE II. This follows a 30% emissions reduction achieved under earlier norms. The push for cleaner vehicles supports India’s commitment to reduce carbon intensity by 45% by 2030. However, automakers like Maruti Suzuki and Hyundai argue that compliance requires costly technologies, such as hybrids and EVs, which could raise prices by 10-15%. This comes amid a slowdown in passenger vehicle sales, with 3.20 lakh units sold in June 2025.
The industry faces additional pressures from global trends. In Europe, automakers like Volkswagen aim for 80% EV sales by 2030, while Mercedes delayed its 50% electrified target to 2030 due to cost concerns. India’s EV market is growing, with penetration at 4.1% in May 2025, but infrastructure gaps, like limited charging stations, hinder adoption. Automakers argue that consumer reluctance to switch from internal combustion engine (ICE) vehicles, coupled with high retrofit costs, makes CAFE III targets unrealistic. They seek government subsidies to offset expenses.
The government’s push for stricter norms aligns with global climate goals, including the Paris Agreement’s 1.5°C target. India’s transport sector, contributing 14% of emissions, is a key focus. EVs and hybrids can reduce emissions, but the industry warns that higher prices could deter buyers, especially in price-sensitive segments like small cars. The 70% price hike in entry-level cars since 2019 has already reduced demand. Automakers propose extending compliance deadlines to 2030 and increasing incentives like tax credits to support EV adoption and compliance.
Economic implications are significant. The auto sector employs millions and contributes 7% to India’s GDP. A slowdown due to higher prices could impact jobs and growth. The RBI’s 5.5% repo rate cut in 2025 aims to boost demand, but automakers argue it’s insufficient without targeted support. The government’s PLI scheme for EVs offers some relief, but funds are limited. Globally, the shift to EVs requires massive investment in battery production, with India’s committed capacity sufficient for 55% EV sales by 2030.
Challenges include supply chain constraints and raw material costs. The weaker US dollar, down 10% in 2025, raises import costs for battery components, impacting EV affordability. Automakers also face competition from Chinese manufacturers, who dominate global EV markets. India’s push for local battery production, supported by policies like the National Mission on Transformative Mobility, aims to reduce reliance on imports. However, scaling production requires time and investment, which could delay CAFE III compliance.
Consumer preferences pose another hurdle. While SUVs, making up 67.6% of Hyundai’s sales, are popular, their higher emissions complicate compliance. Automakers advocate for flexible targets that account for market preferences and gradual EV adoption. The government’s focus on net-zero by 2070 requires a balanced approach, ensuring environmental progress without stifling economic growth. Collaboration between industry and policymakers is essential to design feasible targets and support mechanisms.
India’s CAFE III norms highlight the tension between environmental goals and economic realities. While the government pushes for cleaner vehicles, automakers seek practical solutions to manage costs and maintain demand. Incentives, extended timelines, and infrastructure development are critical to align the auto sector with India’s net-zero ambitions without compromising growth.
Source :Outlook Business
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