The long-negotiated India–European Union (EU) Free Trade Agreement (FTA) marks a major step in bilateral trade relations, but it is unlikely to lead to lower prices for European car brands in India in the near term. Automakers and analysts say the agreement’s phased structure, implementation timeline and currency headwinds significantly dilute any immediate pricing benefit for consumers.

Phased tariff cuts, delayed rollout

Under the FTA, import duties on EU-manufactured cars will be gradually reduced from current peak levels of up to 110% to 10% over a five-year period, subject to an annual quota of 2.5 lakh vehicles. However, industry executives caution that the agreement is unlikely to come into force before the next 18–24 months, as it still requires approvals across EU member states.

At the time of implementation—expected around the end of calendar year 2026—duties on eligible vehicles priced above 15,000 euros (around Rs 16.4 lakh) are expected to fall initially to around 30–35%, before tapering down over time. Importantly, Battery Electric Vehicles (BEVs) will not see any duty concessions for at least the first five years.

Local assembly limits price impact

A key reason prices are unlikely to fall is the dominance of local assembly in India’s luxury car market. Over 90% of luxury vehicles sold annually—around 51,000–52,000 units—are assembled locally from Completely Knocked Down (CKD) kits by brands such as Mercedes-Benz, BMW, Audi and Jaguar Land Rover.

CKD kits already attract a significantly lower import duty of about 16.5%, compared to 70% for CBUs priced up to USD 40,000 and up to 110% for higher-value imports. Since CKD kits are excluded from tariff concessions under the FTA, the scope for price reductions on most luxury models remains limited.

What European automakers are saying

Mercedes-Benz India MD and CEO Santosh Iyer said the company does not foresee any price reduction from the FTA, as over 90% of its volumes are locally manufactured and only around 5% come via EU CBUs. BMW Group India president and CEO Hardeep Singh Brar echoed this view, noting that while the FTA could enable niche model introductions over time, immediate price changes are unlikely.

Audi India brand director Balbir Singh Dhillon said pricing implications can only be assessed once the final terms and timelines are available. Skoda Auto Volkswagen India MD and CEO Piyush Arora said greater tariff certainty could allow evaluation of a wider range of European models and support long-term technology transfer, without signalling near-term pricing benefits.

Currency pressures offset duty gains

Adding to the challenge is currency volatility. The rupee depreciated nearly 19% against the euro in 2025 alone, prompting several luxury carmakers to raise prices in early 2026. Analysts warn that exchange-rate pressures could offset a significant portion of any duty-related gains even after the FTA becomes operational.

Which players may benefit first

Niche super-luxury brands such as Lamborghini, Ferrari and Porsche—which rely entirely on CBU imports—could see benefits earlier, subject to quota availability. However, for most European brands operating in India, the FTA is expected to reshape product strategy, technology access and premium portfolio depth well before delivering meaningful price relief for consumers.

The long-negotiated India–European Union (EU) Free Trade Agreement (FTA) marks a major step in bilateral trade relations, but it is unlikely to lead to lower prices for European car brands in India in the near term. Automakers and analysts say the agreement’s phased structure, implementation timeline and currency headwinds significantly dilute any immediate pricing benefit for consumers.

Phased tariff cuts, delayed rollout

Under the FTA, import duties on EU-manufactured cars will be gradually reduced from current peak levels of up to 110% to 10% over a five-year period, subject to an annual quota of 2.5 lakh vehicles. However, industry executives caution that the agreement is unlikely to come into force before the next 18–24 months, as it still requires approvals across EU member states.

At the time of implementation—expected around the end of calendar year 2026—duties on eligible vehicles priced above 15,000 euros (around Rs 16.4 lakh) are expected to fall initially to around 30–35%, before tapering down over time. Importantly, Battery Electric Vehicles (BEVs) will not see any duty concessions for at least the first five years.

Local assembly limits price impact

A key reason prices are unlikely to fall is the dominance of local assembly in India’s luxury car market. Over 90% of luxury vehicles sold annually—around 51,000–52,000 units—are assembled locally from Completely Knocked Down (CKD) kits by brands such as Mercedes-Benz, BMW, Audi and Jaguar Land Rover.

CKD kits already attract a significantly lower import duty of about 16.5%, compared to 70% for CBUs priced up to USD 40,000 and up to 110% for higher-value imports. Since CKD kits are excluded from tariff concessions under the FTA, the scope for price reductions on most luxury models remains limited.

What European automakers are saying

Mercedes-Benz India MD and CEO Santosh Iyer said the company does not foresee any price reduction from the FTA, as over 90% of its volumes are locally manufactured and only around 5% come via EU CBUs. BMW Group India president and CEO Hardeep Singh Brar echoed this view, noting that while the FTA could enable niche model introductions over time, immediate price changes are unlikely.

Audi India brand director Balbir Singh Dhillon said pricing implications can only be assessed once the final terms and timelines are available. Skoda Auto Volkswagen India MD and CEO Piyush Arora said greater tariff certainty could allow evaluation of a wider range of European models and support long-term technology transfer, without signalling near-term pricing benefits.

Currency pressures offset duty gains

Adding to the challenge is currency volatility. The rupee depreciated nearly 19% against the euro in 2025 alone, prompting several luxury carmakers to raise prices in early 2026. Analysts warn that exchange-rate pressures could offset a significant portion of any duty-related gains even after the FTA becomes operational.

Which players may benefit first

Niche super-luxury brands such as Lamborghini, Ferrari and Porsche—which rely entirely on CBU imports—could see benefits earlier, subject to quota availability. However, for most European brands operating in India, the FTA is expected to reshape product strategy, technology access and premium portfolio depth well before delivering meaningful price relief for consumers.