Hailed as a historic pact, the India-European Union Free Trade Agreement (India-EU FTA) will see customs duty on EU-made cars reduce significantly over time for a select allocation, and duties on auto components will be completely abolished after five to 10 years. However, there is some confusion as to how it will actually affect luxury car prices and whether on-road prices of made-in-EU cars will reduce at all. Here we answer some of the most frequently asked questions about the India-EU FTA.
When will the India-EU FTA come into effect?
Likely in FY2027-28, following which tariffs will reduce in a phased manner.
While the pact was concluded on January 27, the India-EU FTA is expected to come into effect in the fiscal year 2027-28, with some sources reporting mid-2028. As per the terms of the pact, customs duty on EU-made cars costing above 15,000 euros (around Rs 16.31 lakh) will reduce from 110 percent to about 35 percent in the first year of the FTA coming into effect and will eventually fall to 10 percent. This lower tariff rate will only apply to 2.5 lakh imported cars per year; cars imported above the allocation are expected to attract the same 110 percent duty. This means that the FTA could affect prices of fully imported CBUs (completely built units) from Europe, such as BMW’s M line-up or most Mercedes-AMG and Maybach models.
Further, the FTA states that tariffs will be fully abolished for imported car parts after five to ten years. So every luxury car assembled in India – brought into the country via the CKD (completely knocked down kits) route – could potentially see some sort of price revision, albeit only after the five-to-10-year period. Do note that in terms of sales, nearly 95 percent of luxury cars manufactured in India are locally assembled, and the rest are fully imported. Further, there is no clarity on how the FTA will affect cars imported in semi-knocked down kits (SKD).
Does the reduction in duties affect EVs and ICE cars separately?
First, only ICE cars will come under the FTA’s ambit; EVs will see duty cuts after five years.
Initially, the terms of the FTA will not affect tariffs on EU-made EVs. When the FTA comes into effect, only ICE-powered vehicles will benefit. However, sources suggest that EVs will see similar tariff cuts after five years, likely by 2032. It is said that EVs have not been included in the FTA’s ambit at the outset to protect investments by local players.
Will EU-made luxury car prices reduce after the FTA comes into effect?
Not really, as inflation and a weak rupee will likely offset any price reduction.
While the tariffs on EU-made ICE cars will reduce when the FTA comes into effect, new car prices are not expected to see a corresponding decrease. Speaking to the media, Mercedes-Benz India MD and CEO Santosh Iyer said that at best, the reduction in tariffs will act as a buffer against sharper price increases in the mainstream luxury car market. He underlined that expectations of immediate or dramatic price reductions following the FTA are misplaced, as currency movements and cost pressures continue to offset tariff-related gains.
“When we last met 10 days ago, the euro was at 105; today it is already 109. That is a further four percent movement in 10 days,” Iyer said. Mercedes-Benz India will continue with its calibrated, quarter-on-quarter price increases, including a planned hike in the current quarter, irrespective of the FTA’s announcement. “We cannot avoid price increases at this stage,” he said, noting that pricing decisions remain closely linked to exchange rates and input costs.
In fact, Iyer asserts that tariff savings have historically never been fully passed on to new car buyers. Giving an example of a luxury car that costs the equivalent of around Rs 2.5 crore in Europe, he said, “If you take the European price, add the duties and GST, the car should cost close to six crore rupees in India. [But] it is actually priced at around Rs 4.5 crore. That clearly shows tariff impact was never directly passed on,” he said.
Looking ahead, Iyer said the real value of the FTA lies not in price cuts but in preventing prices from rising even faster. Without the agreement, he said luxury car prices could have increased far more sharply over the next few years due to currency depreciation and cost inflation.
Speaking to the press, BMW Group India president and CEO Hardeep Singh Brar said, “While we do not foresee any immediate price changes in the near future, the FTA could create opportunities to introduce new and niche products if demand scales and support deeper localisation over time.”
So while we could see new European luxury cars enter the Indian market in great numbers, it is unlikely that the prices of models on sale right now will reduce.
Should you hold off on buying a new luxury car?
No, you should not.
No. Buying a new luxury car a few months from now or even by 2028 is unlikely to result in any savings, as any impact may only be felt in the medium to long term. Even if there is some reduction in cost that comes from the FTA, as mentioned above, it is likely to be offset by inflation. That means there’s no need to hold off on buying a new European luxury or performance car.
Which cars are likely to be affected by the India-EU FTA?
As stated above, prices of imported CBUs are likely to be impacted by the FTA, with Mercedes-AMG cars, Maybach models and BMW M performance cars being among the candidates. Here is our full list of cars that could get cheaper with the India-EU FTA.
With inputs from Ketan Thakkar