Why India's Small Cars Are Under Threat from CAFE-3 Norms—and Why That’s a Problem

India’s Clean Air and Fuel Efficiency (CAFE-3) norms are set to take effect in April 2027, pushing automakers to reduce average fleet CO₂ emissions to 91.7 g/km under the more rigorous Worldwide Harmonized Light Vehicles Test Procedure (WLTP) standards. On paper, this sounds like a major win for the environment. But in reality, it could kill off the small car segment—the same segment that has made mobility affordable for millions of Indians.

And automakers like Maruti Suzuki aren’t staying quiet. The industry is split, the stakes are high, and the consequences could reshape how—and whether—India’s middle class owns a car.

CAFE-3 Norms: Why They Favour Big, Heavy Vehicles

CAFE norms link allowable CO₂ emissions to a vehicle’s kerb weight—heavier vehicles are allowed to emit more. The trouble? Lighter, more affordable cars like the Maruti Alto or WagonR face tighter emission limits, even though they naturally emit less CO₂ and consume fewer materials during manufacturing.

As R.C. Bhargava, Chairman of Maruti Suzuki, put it, the rules are “biased against lighter, fuel-efficient cars” (Business Standard). Instead of encouraging greener cars, the system rewards bulkier SUVs, which are rapidly becoming the norm in India.

This is a regulatory paradox: rules meant to reduce emissions could end up promoting bigger, more polluting vehicles.

Maruti vs. Everyone Else: The Auto Industry Is Divided

Maruti Suzuki—the market leader in small cars—is lobbying the Indian government to relax CAFE-3 rules for cars under 1,000 kg. According to Reuters, the government is seriously considering this proposal (Reuters).

But rival automakers like Tata Motors, Mahindra, and Toyota strongly oppose such carve-outs. They argue that CAFE-3 was agreed upon industry-wide and that exemptions would give unfair advantages to one segment while undermining India’s climate goals (Economic Times).

The rift highlights a deeper divide: Should policy support the mass market or the premium, SUV-centric direction the industry is trending toward?

The Decline of Affordable Cars

India’s small car market—vehicles under ₹5 lakh—has seen a steep decline. According to industry data, sales in this segment have dropped by 35% annually between 2016–17 and 2024–25 (CarToq).

That isn’t just bad for automakers—it’s bad for consumers. Fewer affordable car options means many potential buyers fall back on unsafe two-wheelers, compromising road safety. Maruti argues that instead of encouraging EV adoption or cleaner engines, CAFE-3 may end up killing access to four-wheeled transport for India’s working class.

The Solution: Footprint-Based Emission Norms

Globally, countries like the U.S. and those in the EU are shifting toward footprint-based standards, where emissions are tied to the vehicle's size—not its weight. This prevents automakers from building unnecessarily heavy cars just to get lenient emission targets.

A similar model in India would:

• Create a level playing field for small and big cars alike.
  
• Incentivise genuine innovation in efficiency and electrification.
  
• Protect access to affordable private transport for low- and middle-income consumers.
  

Policy experts like those at Policy Circle argue that a footprint-based model better reflects environmental impact and consumer realities.

What About Electric and Hybrid Cars?

India’s electric vehicle (EV) adoption is still in early stages. While larger automakers are beginning to invest in EVs and hybrids to meet CAFE targets, the infrastructure isn’t there yet—especially in rural areas. If the market pushes out internal combustion engine (ICE) small cars without a viable EV alternative, consumers are left stranded.

Maruti’s compromise pitch: extend regulatory relief only to ICE vehicles under 1,000 kg, and incentivize small EVs to grow the segment responsibly (Financial Express).

Why This Debate Matters for India’s Future

This is about more than just compliance and emissions—it’s about how India moves. Small cars have long been the first step toward financial independence for millions. They enable daily commutes, family travel, and job access in cities and towns where public transport falls short.

CAFE-3, in its current form, threatens to reverse that progress. If small ICE cars become economically unviable to produce, India could lose not just a market segment—but a mobility revolution in the making.

Final Take: Make Emission Norms Smart, Not Selective

India must modernize its emission standards—but not at the cost of accessibility and equity. A footprint-based CAFE model combined with gradual electrification incentives is the smarter, more inclusive path.

Let’s regulate for a future that’s both clean and fair—where people can still afford to own a car without choosing between cost, safety, or sustainability.

Because a green future isn’t truly green if only the rich can afford to drive in it.

Sources:

• Reuters
  
• Business Standard
  
• Economic Times
  
• CarToq
  
• Policy Circle
  
• Financial Express