The India-EU free trade agreement (FTA) is unlikely to lower prices for most European cars sold in India, given heavy localisation and the low import duties on completely knocked-down (CKD) kits. Carmakers such as Volkswagen, Skoda, Renault, Stellantis, Mercedes-Benz, BMW and Audi already have manufacturing facilities and assembly lines in India, shielding them from heavy import duties.
Only select niche, fully built-up imported cars might see price relief over time, but most European models won’t experience meaningful changes, according to industry executives.
“With more than 90% of Mercedes-Benz India’s sales volume comprising ‘Made in India’ locally manufactured models, and only 5% of sales coming via CBU imports from 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,” said Santosh Iyer, MD & CEO Mercedes-Benz India.
Iyer added that a gradual tariff reduction on vehicles and fully liberalized automotive parts are strategically important decisions in the FTA for the automotive industry.
Currently ‘locally manufactured cars’ from Mercedes and other luxury carmakers attract basic customs duty of 16.5% while imported vehicles from the EU attract up to 110% duty. Further, the rupee depreciated by 19% in 2025 compared to the euro, and this is expected to erode any benefit arising from lower duty import for completely built units (CBUs) in the next couple of years
Hardeep Singh Brar, President and CEO, BMW Group India, also welcomed the FTA but highlighted that over 95% of their volumes come from locally manufactured ‘Made in India’ models, with fully imported vehicles accounting for only about 5% of sales.
“While we do not foresee any immediate price changes in the near term, the FTA could create opportunities to introduce new and niche products and, if demand scales, support deeper localization over time. We will closely evaluate the detailed implementation roadmap, timelines and qualification criteria once the fine print of the agreement is available,” stated Brar.
After years of negotiations, India and the EU finally inked a trade pact. India will eliminate or reduce tariffs on 96.6% of EU goods exports, a move the EU estimates will double its goods exports to India by 2032 and save European companies about €4 billion a year in duties. In return, European markets will open further to Indian exporters, while maintaining strict health, safety and regulatory standards.
One of the most closely watched elements is the automotive sector. Tariffs on imported European cars, currently among the highest in the world, will be reduced gradually from 110% to as low as 10% under a quota-based system, while duties on car parts will be fully abolished over five to ten years.
The FTA is likely to come into effect only by mid-2028, owing to the time taken for required legal, multi-level ratification, and detailed implementation.
The impact of the FTA was however faced by listed automobile companies on Dalal Street. Shares of Mahindra & Mahindra and Hyundai Motor India witnessed heavy selling pressure on Tuesday, falling in the range of 3-4% as investors reacted to the FTA.
PL Capital stated that the FTA will provide EU carmakers greater access to the Indian PV market. It noted that luxury vehicles comprise approximately 1% of the Indian market and that the tariff reduction should not impact the mass market players in the entry and mid segments.
However, tariff reduction may impact premium plus cars from these players to a small extent. “Tariff reduction on BEVs from 100% is expected to be applicable after 5 years in a phased manner, giving the likes of TMPV and M&M some relief,” the domestic brokerage said.
Shailesh Chandra, President, SIAM and MD & CEO Tata Motors Passenger Vehicles, said that while they look forward to specific details of the India-EU FTA with respect to the auto industry, the calibrated approach to balance market access and domestic manufacturing, should give them a win-win between increased global participation on one hand and growth of the domestic auto industry with investments and employment on the other hand.
Anish Shah, Group CEO and MD, Mahindra Group, said that the FTA will provide meaningful benefits across multiple sectors as it strikes a very good balance between opening the market while nurturing manufacturing in India.
“We see a huge positive for the auto sector as it provides duty-free access to European markets and will attract European OEMs to invest further in India. This agreement is very well designed, as it lowers in-quota duties only at higher priced segments which will enhance scale in the core segments relevant to Make in India for the world. We feel this will not change any competitive dynamics in the industry,” added Shah.
Stéphane Deblaise, CEO, Renault Group India, said, “Strategically, the European Union–India Free Trade Agreement clearly signals the direction of closer economic and industrial collaboration between Europe and India. For us, this is very positive news, as Renault Group has made long-term, high-value commitments to both regions. This agreement further reinforces our confidence and willingness to invest across both sides. In many ways, Renault Group truly embodies the spirit of this partnership—we are both an Indian and a European company, deeply rooted in and committed to the growth of both ecosystems.”
Balbir Singh Dhillon, Brand Director, Audi India, said this constructive approach to trade could support the broader automotive ecosystem, including innovation, supply-chain efficiency, and technology collaboration. “That said, any implications for pricing & market can only be assessed once the final terms are available and carefully reviewed, including the timeframe of implementation. Until then, it would be premature to draw conclusions on specific commercial or product strategies,” he added.
