The Ministry of Power’s proposal mandates that M1 category vehicles—spanning hatchbacks to SUVs—reduce fuel consumption from 3.996 liters per 100 kilometers in 2027 to 3.327 by 2032. Carbon targets will tighten significantly, dropping from 113 grams per kilometer to 76 grams within the same window. Manufacturers failing to meet these benchmarks face penalties of 2,500 to 4,500 rupees for every gram of excess CO2 per kilometer.

To balance these requirements, the government is introducing a credit-trading system. Automakers exceeding efficiency targets can sell compliance credits to those lagging behind, providing a financial buffer against non-compliance fines. The policy also offers regulatory incentives for vehicles running on flex-fuel, ethanol, and biofuels, aligning with the national objective of promoting E100 technology.

While the industry anticipates a wider selection of electric and hybrid models—with over 15 new EV launches expected—the transition carries a premium. Stringent technology mandates are likely to inflate production costs, which will almost certainly translate into higher sticker prices for the average consumer.