India-EU Free Trade Agreement: A New Era for European Cars in India
The recent conclusion of the India–European Union Free Trade Agreement (FTA) has ignited widespread speculation about whether European automobiles will finally become accessible to India's burgeoning middle class. This landmark trade deal, hailed as a historic achievement, promises to reshape the automotive landscape through calibrated reductions in import tariffs.
Understanding the Duty Reduction Framework
Under the terms of the agreement, India has committed to a quota-based, phased reduction of import duties on European automobiles. Tariffs are set to gradually decline to as low as 10 per cent over time, a significant drop from the current rates that range between 66 per cent to 125 per cent. This substantial reduction in import duties is expected to lower landing costs, potentially translating into more competitive showroom prices for premium European brands in the Indian market.
Which European Brands Will Benefit?
The duty concessions are poised to make luxury European marques more affordable than before. Key beneficiaries include:
- Mercedes-Benz
- BMW
- Audi
- Ferrari
- Lamborghini
- Rolls-Royce
- Bentley
However, it's crucial to understand that these price reductions will primarily apply to vehicles priced above Rs 25 lakh, as reported by PTI. European manufacturers are unlikely to export mass-market vehicles below this price point to India, opting instead for local production strategies.
Who Actually Stands to Gain from the Price Cuts?
The most significant beneficiaries will be upper middle-class and high-income buyers who have previously been priced out of the luxury car market due to steep import taxes. According to government statements reported by ANI, reduced tariffs will:
- Improve access to high-technology and premium vehicles
- Increase competition in the luxury segment
- Drive technological innovation within the Indian automotive sector
For electric vehicles, the benefits will be more gradual. Duty concessions for EVs will only take effect from the fifth year of the agreement, with rates declining progressively across segments.
Limited Impact on Mass-Market Affordability
Despite the excitement surrounding the FTA, industry experts caution that European luxury cars will not suddenly become affordable for the average middle-class buyer. The Rs 10–25 lakh segment, which dominates India's car market, remains largely protected under the current agreement framework.
Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, emphasized this point while speaking about the FTA's implications. He noted that with over 90 per cent of Mercedes-Benz India's sales volume comprising locally manufactured models, and only around 5 per cent coming via CBU imports from the EU, the company does not foresee any price reduction for its vehicles in the foreseeable future.
Broader Economic Implications and Challenges
Iyer described the Indo-EU FTA as a historic achievement that reiterates "the rising relevance of the Indian economy at a global stage." He highlighted several potential benefits:
- Strong boost to India's economic growth as borders open up
- Opportunities in new markets
- Fostering of bilateral trade
- Creation of job opportunities
However, European carmakers continue to face challenges, particularly the depreciating rupee against the Euro. The rupee had depreciated by 19 per cent in 2025 compared to the euro, which is expected to erode any benefits from lower duty imports for completely built units (CBUs) in the coming years.
Long-Term Outlook and Indirect Benefits
While immediate mass-market affordability remains elusive, the FTA could yield significant indirect benefits over time:
- Enhanced local manufacturing capabilities as European brands increase their Indian operations
- Better technology access through increased collaboration and knowledge transfer
- Increased competition that could drive innovation across the automotive sector
- Sustainable growth with a sharp focus on future mobility solutions
Iyer emphasized that Mercedes-Benz will continue its focus on "value addition to customers through local production and competitive pricing, making world-class vehicles in India, for Indian customers."
The Road Ahead for Indian Consumers
For now, the India-EU FTA makes premium European cars more accessible to affluent buyers while maintaining protection for the mass-market segment. The agreement represents a significant step toward greater economic integration but falls short of making European luxury vehicles affordable for the average middle-class family.
The true implications of the FTA will only become clear once the fine print of the agreement is available to all stakeholders. Until then, Indian consumers can expect gradual changes in the automotive landscape, with luxury becoming more accessible at the top end while the mass market continues to be served primarily by domestic and locally manufactured vehicles.
