TL;DR
India's automotive sector faces significant changes in 2026, including stricter CAFE III norms, mandatory 20% EV/PHEV sales, and universal ABS for two-wheelers, alongside market growth in EVs and flex-fuel vehicles.
The Indian automotive industry is bracing for pivotal changes in 2026, driven by new regulations and evolving market dynamics. Notably, the Bureau of Energy Efficiency introduced revised CAFE III norms in September 2025, setting stricter average fuel efficiency targets for manufacturers' entire vehicle lineups. These norms offer some flexibility for smaller cars based on weight, while imposing tighter limits on larger vehicles.
In a significant push for cleaner mobility, government plans now mandate carmakers to achieve 20 percent EV or plug-in hybrid sales by 2026, escalating to 60 percent subsequently. While FAME II subsidies for smaller vehicles conclude in March 2026, support for passenger cars will continue. Furthermore, from January 2026, all new two-wheelers, irrespective of engine size, will require anti-lock braking systems (ABS), enhancing safety standards across the segment.
The market will also see a surge in flex-fuel vehicles and increased adoption of EVs, supported by an expanding network of superfast charging stations. Experts anticipate EV sales to hit 1 million units in 2025, with a projected 45 percent annual growth through 2026. These changes are expected to make vehicles cleaner and safer, alongside a trend towards premium features even in budget segments, and the introduction of scrappage incentives to boost new vehicle sales.
