The conclusion of the India–European Union Free Trade Agreement (FTA) has sparked buzz around whether European cars will finally come within reach of India’s middle class. Under the deal, India has agreed to a calibrated, quota-based reduction in import duties on European automobiles, with tariffs set to fall to as low as 10 per cent over time.This will make premium European brands such as Mercedes-Benz, BMW, Audi, Ferrari, Lamborghini, Rolls-Royce and Bentley cheaper than before. Currently, import duties on cars range from 66 per cent to as high as 125 per cent. Lower duties will reduce landing costs, potentially bringing down showroom prices in India.However, this does not mean mass affordability. According to details reported by PTI, the duty concessions apply mainly to cars priced above Rs 25 lakh. Vehicles likely to sell below this price point will not be exported to India by EU manufacturers and may instead be produced locally.
Who actually benefits from the price cuts
The biggest beneficiaries will be upper middle-class and high-income buyers who were previously priced out due to steep import taxes. Reduced tariffs will improve access to high-technology and premium vehicles, while increasing competition in the luxury segment, the government said, as per ANI.For electric vehicles, duty concessions will kick in only from the fifth year of the agreement, with rates gradually declining across segments, reported PTI. This means EV affordability gains will be gradual rather than immediate.
Middle-class impact remains limited, for now
While the FTA is being hailed as a landmark trade deal, it is unlikely to suddenly make European luxury cars affordable for the average middle-class buyer. The Rs 10–25 lakh segment, which dominates India’s car market, remains largely protected.That said, the deal could still have indirect benefits over time through local manufacturing, better technology access and increased competition. For now, the India-EU FTA makes premium cars cheaper — but true middle-class affordability remains some distance away.The India-EU FTA will strongly drive technological innovation within the Indian automotive sector, Mercedes-Benz India MD and CEO Santosh Iyer said on Tuesday, while ruling out any price reduction of the company’s vehicles in the foreseeable future after the deal.Terming the Indo-EU FTA as a historic achievement for India, Iyer said the pact reiterates the “rising relevance of the Indian economy at a global stage”.“The FTA is also expected to strongly drive technological innovation and sustainable growth within the Indian automotive sector, with a sharp focus on future mobility. Saying that, the final implications of the FTA can only be determined once the fine print of the agreement is available to us,” he added.On the impact of the FTA on prices of vehicles, Iyer said, “With more than 90 per cent of Mercedes-Benz India’s sales volume comprising ‘Made in India’ locally manufactured models, and only around 5 per cent of sales coming via CBU imports from the EU, we do not foresee any price reduction for Mercedes-Benz vehicles from the FTA, in the foreseeable future”.“We will continue our focus on value addition to customers through local production and competitive pricing, making world-class vehicles in India, for Indian customers.”Mercedes-Benz India pointed out that the depreciating rupee against the Euro would continue to pose a challenge for European carmakers in India.The rupee had depreciated by 19 per cent in 2025 compared to the euro, which is expected to erode any benefit arising from lower duty import for CBUs in the next couple of years.Stating that Mercedes-Benz has always advocated free trade, he said it brings down trade barriers, leverages the mutual strengths of global economies, and mitigates supply chain uncertainties.“With the Indo-EU FTA, India’s economic growth should get a strong boost as borders open up, presenting opportunities in new markets, fostering bilateral trade, and creating job opportunities,” Iyer noted.
