Mumbai: India’s historic Free Trade Agreement with the European Union is poised to bring a wave of change to the domestic luxury automobile market as steep cuts in import tariffs could significantly lower prices of European-made cars.
Under the pact finalised on January 27, 2026, import duties on cars manufactured in the EU — currently levied at as high as 110 % — will be slashed sharply in phases. An initial reduction to 40 % is expected soon after the deal comes into force, followed by further cuts to 10 % on most fully built units (CBUs) within a multi-year transition period, subject to an annual quota of around 250,000 vehicles.
The potential shift in duty structure has triggered excitement among buyers and automakers alike. European luxury brands, long priced out of reach for many Indian consumers due to prohibitive tariffs, could see their vehicles become markedly more affordable, particularly in the petrol and diesel segments. Models from Mercedes-Benz, BMW, Audi, Porsche and other premium marques are among those expected to benefit most from the cuts.
However, not all industry voices are convinced that price reductions will materialise immediately. Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, said that while the FTA will advance technological collaboration and market integration, it does not guarantee near-term price cuts for Mercedes vehicles, noting that over 90 % of the company’s sales in India are from locally manufactured models and that factors like currency depreciation could temper any import cost savings.
For BMW, industry executives see the agreement as a growth catalyst. Hardeep Singh Brar, President and CEO of BMW Group India, said that lowering duties on European imports could help expand the small luxury car segment, which currently accounts for only about 1 % of India’s passenger vehicle market.
He noted that reduced tariffs could enable the company to broaden its product portfolio and introduce new models, stimulating demand without significantly impacting mass-market players.
Despite positive signals, the price reductions may take time and depend on how quickly duty cuts are phased in, regulatory constraints and strategic pricing decisions by automakers. Additionally, electric vehicles are likely to be excluded from initial tariff relief to protect nascent domestic EV manufacturing, potentially delaying cost benefits in that segment.
Domestic carmakers have responded with mixed reactions. While tariff cuts are expected to broaden consumer choice, shares of some Indian manufacturers fell on market speculation that lower-priced European imports could intensify competition in the upper end of the market.
In sum, the India-EU FTA lays the foundation for a more competitive luxury auto landscape in India, with meaningful tariff reductions that over time should make European premium vehicles more accessible — even as the pace and extent of price adjustments remain subject to regulatory and market dynamics.