BEE's draft CAFE norms risk derailing India's EV ambitions, industry competitiveness

Last month, Delhi unveiled one of the country's most progressive EV policies. By prioritising full electrification over ineffective transitional technologies, it signalled that the Capital is preparing to compete in industries of the future rather than defend those of the past.

Barely two weeks later, on July 16, Bureau of Energy Efficiency (BEE) released the 4th draft of Corporate Average Fuel Efficiency (CAFE) standards for passenger cars. Instead of strengthening India's transition towards cleaner mobility, the draft represents the most stunning retreat in recent industrial policy.

Ironically, Delhi government, which must wrestle with realities of politics, has pursued difficult reforms. In contrast, BEE, an independent regulator, has yielded to pressure from a section of automakers determined to delay inevitable technological change. While it contains many technical weaknesses, three fatal flaws undermine India's economic and industrial interests:


No direction The draft claims that it intends to promote EVs and hybrid vehicles. But industrial policy cannot simultaneously champion the future and preserve the past. Hybrids may have once played an important transitional role, but every major automotive market now recognises that battery EVs are the destination. Regulations should accelerate this transition, not muddle it.

More worrying is the dilution of ambition. The 2024 proposal implicitly required EVs to account for 14-15% of passenger car sales by 2032. The 2025 draft lowered that expectation to 11-12%. The latest proposal weakens it further to 8-9%. EV sales have reached 7.5% this financial year. Regulations are meant to become more ambitious as technology matures. BEE's draft does the opposite.

Other countries are surging ahead with electrification. More than 75% of the cars sold in Nepal are electric. Singapore and Vietnam are at 40%. Yet, India stagnates at barely 2.5%. While other nations accelerate their industrial and economic competitiveness, BEE institutionalises feeble ambition. With technological leapfrogging in motor vehicles, our cities will continue to choke with air pollution.

Mediocrity over innovation The proposal provides generous compliance credits for technologies such as start-stop systems, tyre pressure monitoring systems and LED lighting, already standard features across much of the industry. Their benefits are largely reflected in existing efficiency improvements. Rewarding manufacturers for deploying mature technologies subsidises business as usual.

Flex-fuel vehicles fare no better. The draft credits them as though they were near-zero-emission vehicles, even though the fuel they are designed to run on is barely sold at any pump in the country.

A regulation that makes compliance easier without demanding technological progress defeats its purpose. The objective of CAFE standards should be to push manufacturers beyond their comfort zones, not to create new escape routes.

Unnecessary conflict of interest Globally, fuel economy and emission standards are enforced through transparent compliance mechanisms in which manufacturers that outperform their targets earn credits that can be traded with those falling short. Regulators establish rules, verify compliance and oversee the market. They do not participate in it.

The new CAFE draft departs from this principle by allowing manufacturers to not only trade credits among themselves but also purchase credits from BEE at a fixed price. If BEE becomes a seller of compliance credits, it will simultaneously function as the regulator, market administrator, price setter and market participant. No credible regulatory framework combines these roles. Regulators must remain impartial referees, not players in the game they supervise.

India stands at the biggest tech turning point in auto history. Nations that adopt ambitious standards today will attract investment, build domestic manufacturing capability and become exporters of next-gen technologies. Those that dilute standards to protect incumbent interests will lose competitiveness, increase their dependence on imported fossil fuels and buy technologies developed elsewhere.

BEE can still correct course. Any CAFE framework should challenge industry to innovate, not reward it for standing still. It should accelerate India's transition to globally competitive technologies, not slow it down. Most importantly, it should regulate in the national interest rather than accommodate the lowest common denominator.

BEE is fast becoming one of India's most outdated regulators. History rarely remembers regulators that defended yesterday. It remembers those that dared to build tomorrow. India deserves a CAFE framework that prepares its automotive industry for the future, not one that anchors it to the past.