Maruti vs Mahindra: The Two Sides Of The CAFE-III Norms Conundrum

Updated: Wednesday, July 16, 2025, 19:57 [IST]

India's next phase of fuel-economy rules - CAFE (Corporate Average Fuel Efficiency)-III- is expected to go into effect from April 2027 (BEE Notification). The new CAFE-III norms will impose much tighter CO₂ targets compared to the current CAFE-II norms that came into effect in 2022-23.

Under CAFE-II, each automaker must average about 4.78 L/100 km or approximately 113 g/km CO₂ across its sales. CAFE-III is expected to ratchet that down to roughly 91-95 g/km by the 2030s. To meet CAFE-III norms, carmakers will have to balance any thirsty SUVs with ultra-efficient hatchbacks so the fleet-wide average stays below the cap. No surprise, then, that a public tug-of-war has erupted among India's top manufacturers.

Maruti Suzuki Wants Small Cars To Be Protected

According to a Reuters report from last month, Maruti Suzuki, India's largest carmaker - whose bread-and-butter models are tiny hatchbacks like the Alto, WagonR and Swift - says the new scheme unfairly penalises its fleet.

Under the weight-based formula that CAFE norms are based on, lighter vehicles face tighter CO₂ limits than heavier ones. Maruti warns that meeting CAFE-III would force costly upgrades - stronger engines, hybrid and CNG variants, etc. - on its low-end cars, eroding their price advantage and possibly pricing them out of reach for budget and first-time buyers.

Mahindra - No Preferential Treatment, Same Norms For Everyone

Mahindra, currently India's second most popular carmaker - with its SUV-heavy lineup (Thar, Scorpio-N, XUV700, BE 6, XEV 9e etc.) - takes the opposite view. According to a recent report by the Business Standard has written to the Ministry of Road Transport & Highways expressing its views on the CAFE-III norms.

Mahindra has already been investing heavily in EVs and hybrid powertrains and argues that strict CAFE-III will reward those clean-tech efforts. Its vehicles are much heavier on average, so they automatically qualify for more lenient CO₂ targets under CAFE-III. In fact, Tata, Mahindra and others have poured billions into cleaner diesel engines, hybrids and EVs for large cars, so they see no reason to water down the targets.

In Mahindra's view, keeping the tough limits will spur innovation, whereas loosening the norms would simply reward those who have been lackadaisical in investing in green technology.

Global Precedents - Smaller Cars Are Safeguarded

The differing opinions of Maruti Suzuki and Mahindra about the implementation are not something new and mirror choices other markets have faced.

A recent report by Japanese research firm Nomura notes that all major auto markets (USA, China, Japan, Korea, Europe) build in "protection" for small cars.

The report (as quoted by the Indian Express) states, "Globally, all major automotive markets including the US, China, Japan, Korea, and Europe offer regulatory protection to small cars under their CAFE frameworks due to their environmental and socioeconomic value. In contrast, India's linear weight-based CAFE approach penalises lighter vehicles with disproportionately stringent CO₂ targets. This creates a structural bias where heavier vehicles with higher emissions comply easily, while small cars with lower emissions fail. Lightweighting, a key decarbonisation strategy, is thus disincentivised."

Let's take a look at how small cars are protected from these cummulative emission norms in these markets:

USA: A footprint-based, piecewise formula caps the tightening for small cars - below a set size, the fuel-economy target stops getting stricter.
China: A similar weight-based cutoff means tiny cars hit a fixed (non-worsening) target once they're below a curb-weight threshold.
South Korea: Below a certain weight cutoff, small cars keep a constant target and even earn bonus credits for high small-car sales ratios.
Japan: A nonlinear (quadratic) formula ensures the smallest cars never face disproportionately strict goals.
Europe: Logic is flipped compared to what India is proposing: larger cars get tougher absolute CO₂ limits, while smaller cars get comparatively relaxed targets.

In short, other large car markets prevent emission targets from tightening endlessly on light cars. The Nomura Research paper suggests that India could adopt similar "piecewise" or footprint-based methods, or award extra credits, so as not to unduly punish its fuel-efficient hatchbacks.

CAFE-III: What Lies Ahead

Ultimately, regulators face a tough trade-off between cutting emissions and keeping cars affordable. India's middle class still depends on budget hatchbacks for most daily driving.

If making those tiny cars CAFE-compliant becomes too costly, manufacturers may simply shift production toward heavier models that breezily meet the limits. That would be quite an ironic twist - a rule meant to curb emissions ends up phasing out the very low-emission cars consumers actually buy.

The government's eventual decision on CAFE-III will therefore reshape India's auto future: stick to the hard line and push automakers into a more expensive electrified future, or ease norms to protect the small-car segment and the aspirations of the common man.

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