India trims fuel efficiency penalties for automakers to Rs 2,728 crore from earlier estimates

India’s framework for enforcing fuel efficiency norms is set for a recalibration, with the penalty imposed on carmakers for missing Corporate Average Fuel Efficiency (CAFE-2) targets revised sharply downward to Rs 2,728 crore from earlier estimates of about Rs 7,800 crore, according to a presentation made by the power ministry to the Prime Minister’s Office, reported Times of India.

The revised penalty covers nine automakers that failed to meet CAFE-2 standards over a three-year period from FY23 to FY25. The earlier computation of penalties was based on a per-vehicle and per-manufacturer formula, which has now been reworked under a more standardised approach.

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Previously, penalties were structured at Rs 10 lakh per original equipment manufacturer (OEM), along with Rs 25,000 per vehicle for non-compliance below 0.2 litres per 100 km, and Rs 50,000 per unit for deviations beyond that threshold. Under the updated methodology, the ministry has applied a uniform penalty of Rs 37.5 lakh per OEM for the April–December period of FY23, contributing to the overall reduction in the final penalty figure.

The revision comes as the government works to finalise the next phase of fuel efficiency regulations, CAFE-3, which will govern compliance for the FY28–FY32 period. The current CAFE-2 framework remains in force from FY23 to FY27.

According to the presentation, the ministry has also proposed the creation of a credit-debit registry for each OEM, to be maintained by a designated authority. Officials said this mechanism is expected to improve enforcement of penalties and compliance provisions while bringing greater transparency to the system.

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The registry will track credits earned by manufacturers for exceeding efficiency targets and deficits incurred by those falling short. Surplus credits generated by OEMs can be pooled within defined block periods—first a three-year phase followed by a two-year phase within the five-year cycle. Manufacturers with excess credits will be able to sell them to those facing deficits, allowing for intra-industry balancing of compliance obligations.

However, companies that are unable to offset their deficits through credit purchases will remain liable to pay penalties.

The ministry’s presentation also noted that the Prime Minister’s Office had earlier directed the power and road ministries to establish a clear mechanism for the recovery of penalties imposed on automakers, indicating a push toward tighter enforcement and improved regulatory clarity in the fuel efficiency regime.

With inputs from TOI