Context

• India’s logistics ecosystem has been transformed by the rapid expansion of Light Commercial Vehicles, which underpin last-mile delivery in the e-commerce
• These vehicles operate intensively and travel long daily distances, yet for years they existed in a regulatory blind spot.
• While passenger cars were brought under fuel economy rules, LCVs remained outside mandatory limits.
• This changed in July 2025, when the Bureau of Energy Efficiency proposed fuel efficiency standards for LCVs for the 2027–2032 period, marking a decisive shift in clean transport policy.

The Significance of LCVs in India’s Emissions Landscape

• LCVs accounted for 48% of India’s commercial goods vehicle fleet in 2024, making them central to freight movement and urban air quality.
• Despite this dominance, electrification remains minimal at just 2%.
• The climate implications are substantial: average LCV fleet emissions stood at 147.5 g CO2/km in 2024, and without even this small electric share, emissions would rise to 150 g CO₂/km.
• This demonstrates that limited electrification can still produce measurable gains, reinforcing the importance of regulating this segment within India’s broader decarbonisation strategy.

Industry Resistance and Government Resolve

• Automakers initially lobbied for exemptions, arguing that the LCV market is highly price-sensitive and that compliance would require costly upgrades.
• These concerns mirror earlier industry resistance in the passenger car segment.
• However, the government’s refusal to dilute the proposal signals a clear policy commitment to decarbonisation.
• The experience with passenger vehicles, where electric adoption remains around 3% after years of regulation, illustrates that exemptions and weak targets can significantly blunt the impact of otherwise well-intentioned rules.

Fuel Efficiency Standards and the Economics of Electrification

• The effectiveness of fuel economy regulation depends largely on its stringency.
• Weak standards encourage incremental improvements to ICE vehicles rather than a shift to electric powertrains.
• Research shows that at 116.5 g CO₂/km, further reductions become cheaper through electric vehicles than through ICE optimisation.
• The proposed target of 115 g CO₂/km marginally crosses this threshold, making electric LCVs technically viable but not compelling enough to trigger large-scale transition.
• Market dynamics further complicate adoption. Conventional LCVs typically cost under ₹1 million, while electric equivalents remain more expensive.
• Although battery-powered vehicles offer lower lifetime operating costs, inconsistent policy support undermines demand.
• National schemes exclude LCVs, leaving adoption dependent on uneven state-level incentives, which weakens investor confidence and slows scale-up.

Super Credits, Hybrids, and the Risk of Regulatory Dilution

• To address early barriers, the proposal introduces super credits for electric LCVs and assigns them a zero CO₂ value for compliance, making them attractive for manufacturers seeking cost-effective compliance.
• This approach aligns with international practices and can accelerate early market entry. However, the policy also extends similar benefits to hybrids and offers offset factors for select ICE technologies.
• While intended as transitional measures, these provisions risk delaying full electrification.
• If manufacturers can comply through partial solutions rather than committing to BEVs, investment in dedicated electric platforms may be postponed.
• The plan to phase out super credits for electric LCVs while retaining support for hybrids and ICE technologies could entrench conventional powertrains rather than displace them.

Conclusion

• India has taken a necessary step by bringing LCVs under fuel efficiency regulation, recognising their scale and environmental impact.
• Yet regulation alone is insufficient without careful design. Strong targets that make electrification economically attractive, combined with time-bound incentives that clearly prioritise BEVs, are essential for meaningful transformation.
• Without this alignment, India risks repeating the passenger car experience, where cautious standards have slowed the transition to clean mobility rather than accelerating it.