New Delhi, July 10 -- India's top energy efficiency agency is exploring possible ways to ease proposed emission caps for small cars amid plummeting demand, according to two people aware of the matter, even as electric vehicle makers oppose such a relief.

The potential plan may allow small cars a regulatory relaxation in the initial years from the next-generation Corporate Average Fuel Efficiency (CAFE) standards, which are aimed at making vehicles more fuel-efficient, the people said on the condition of anonymity. This will be followed by a gradual tightening in the subsequent years, they said.

The Bureau of Energy Efficiency (BEE), which is tasked with finalising CAFE III and IV norms, is studying the viability of easing these emission...