Post by : Anis Farhan

The recent announcement of a landmark Free Trade Agreement (FTA) between India and the European Union has ignited intense discussion across the automotive sector and among potential car buyers in India. Heralded as a historic pact after nearly two decades of negotiation, the agreement aims to eliminate or sharply reduce tariffs on the majority of European exports entering India — including automobiles. For many consumers, this development raises the promise of lower prices for imported European vehicles such as luxury models from brands like Mercedes-Benz, BMW, Audi, Porsche and others. However, while the tariff cuts under the FTA do create the framework for potentially more affordable cars, the real-world impact on pricing contains important nuances and limitations that buyers should understand before setting expectations.

The Promise of Lower Tariffs on European Cars

Under the new India-EU FTA, India has agreed to reduce tariffs on fully imported cars — known as Completely Built Units (CBUs) — from levels as high as up to around 110 per cent to as low as 10 per cent, subject to phased implementation and annual quotas. The agreement initially reduces duties to approximately 40 per cent for many high-end models, with further cuts planned over time, eventually approaching the 10 per cent level.

This reduction is a dramatic fall from historically high import duty rates that have made European cars among the most expensive in the Indian market. In effect, the FTA signals a more open market and the possibility of imported European vehicles becoming more competitively priced relative to their current cost structures, which are boosted by steep tax burdens.

Phased Implementation: Slow but Significant

Unlike a simple, immediate tax cut, the FTA’s tariff reductions are designed to be phased over multiple years as part of a quota system — meaning only a limited number of cars per year will benefit from the lower duties initially, with broader application over time. In practical terms, this gradual implementation means that the full price benefits could take several years to materialize for most imported European cars.

Industry analysts and trade experts note that implementation is likely to begin in earnest in fiscal years 2027-28 or 2028, once ratification and procedural agreements are complete. Only then will cars imported into India under the quota limits begin to reflect lower tariff costs.

The Catch: Where Price Benefits Actually Apply

While the headline figures for tariff cuts are eye-catching, the FTA’s benefits are not uniform across all cars or categories. A key limitation is that the tariff reductions apply only to fully imported cars (CBUs) — that is, vehicles shipped completely assembled from Europe.

In contrast, completely knocked down (CKD) cars — vehicles imported in parts and assembled locally in India — will not benefit from the full tariff cuts. Currently, many luxury car brands like Mercedes-Benz, Audi, and BMW sell most of their models in India through local assembly, meaning they are already subject to much lower import duties (around 16-17 per cent). Those CKD units receive minimal advantage from the tariff cuts under the FTA, because they did not attract the steep 110 per cent duty in the first place.

This structural nuance means that for many popular European models assembled locally in India, the real price change could be modest or even negligible, despite the headline reduction in tariff rates for fully imported cars.

Which Cars Could Actually Get Cheaper?

Imported vehicles that are completely built in Europe and shipped to India — and fall within the annual quota — will see the most significant price impact from lower tariffs. Examples include high-end performance and luxury models such as:

• Mercedes-AMG G 63

• Mercedes-AMG CLE 53

• BMW M4 Coupe

• BMW M8 Coupe

• BMW i4

• Audi RS Q8

• Porsche 911

• Porsche Cayenne

• Porsche Macan

• Porsche Taycan

• Porsche Panamera

• Maserati Grecale

• Lamborghini Urus SE

• Lamborghini Revuelto

• Land Rover Defender

• Rolls-Royce Ghost

• Bentley Bentayga

These are among the vehicles most likely to fall within the defined quota categories and benefit from duty cuts under the new FTA.

Why Some Popular European Cars May Not Get Cheaper

Although luxury models imported as CBUs stand to gain from tariff reductions, there’s an important market-structure reason why many European cars sold in India might not see sharp price drops:

• High share of CKD units: The majority of European cars sold in India are assembled locally from imported kits (CKD). These kits already avoid the highest import duties, so the tariff cut under the FTA will not meaningfully change their current cost structure.

• Tariffs on CKD imports may only be marginally reduced: While some savings may accrue if duties on CKD kits are halved, industry insiders point out that such cuts may be limited and slower to materialize.

• Implementation period and quota limits: With phased implementation and strict annual quotas, only a limited number of imported cars will enjoy lower tariffs each year, slowing widespread price drops.

These factors cumulatively suggest that, for many cars popular in the Indian market, the FTA’s impact on on-road pricing may be much smaller than consumers anticipate — despite broader headline numbers indicating steep tariff cuts.

Strategic Implications for Car Manufacturers

The India-EU FTA doesn’t just influence pricing — it also reshapes strategic priorities for European and Indian automakers alike:

European Manufacturers

European carmakers see the FTA as a gateway to expanding their presence in India’s fast-growing auto market, particularly in the luxury segment. With lower tariffs on fully imported cars, brands like Mercedes-Benz, BMW and others may pursue enhanced allocations for Indian customers, focusing on premium models that historically faced prohibitive duties.

Industry executives have indicated that the FTA provides a platform for greater market access and technology sharing, which could strengthen the business case for retail operations and future local manufacturing investments.

Domestic Indian Automakers

For Indian manufacturers, especially those focusing on electric vehicles (EVs) like Tata Motors and Mahindra, the deal carries both challenges and opportunities. While the tariff structure seeks to protect domestic EV producers by delaying tariff cuts on imported EVs for several years, the increased competition from European imports — even if limited — may spur Indian companies to accelerate innovation and product development.

Broader Consumer Impact: Choice and Competition

Even if price drops are limited in the short term, the FTA is likely to alter the competitive landscape in several ways:

• Enhanced availability of premium models: With reduced tariffs on CBUs, more European models may become available in India, broadening buyer choice.

• Improved product variety and technology: Easier access to the latest European automotive technologies could benefit Indian consumers through increased competition and feature-rich offerings.

• Potential long-term price moderation: Over time and with expanded quotas, downward pressure on prices may materialize as competition intensifies and economies of scale improve.

Limitations and Future Outlook

While the India-EU FTA represents a watershed moment in trade policy and global economic cooperation, the actual consumer experience — especially in terms of lower car prices — may play out slowly and vary by segment. Factors such as phased tariff implementation, quota systems, local assembly strategies and protective measures for domestic EV producers mean that broad price reductions may remain modest in the near term.

However, in a broader strategic sense, the FTA sets the stage for deeper integration between Indian and European markets, potentially boosting innovation, increasing vehicle variety and strengthening India’s position in the global automotive landscape over the next decade.

Conclusion

The India-EU Free Trade Agreement introduces an era of possibility for the Indian automotive market, especially with the promise of dramatically lower tariffs on fully imported European cars. Yet the nuances of phased implementation, limited quotas, and the high prevalence of locally assembled vehicles mean that the immediate impact on prices for most consumers may be muted. Luxury imported cars, especially those brought into India as CBUs, stand to benefit most, but broader affordability for European brands across the market will depend on how the trade deal is executed over time.

Ultimately, while the FTA could reshape vehicle availability and competitive dynamics in India, the catch lies in understanding precisely which cars benefit, how tariffs change, and when consumers may actually see meaningful price reductions.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or purchasing advice. Tax structures, trade policies and market conditions are subject to change.

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