What’s the India-EU FTA? Will German cars finally get cheaper?

For years, buying a European luxury car in India has felt like a punishment for being a car guy. You know what you want. You know what it costs elsewhere. And yet, by the time it reaches an Indian showroom, the price has ballooned into something almost comical. The India-EU Free Trade Agreement brings good news. It has taken a hammer to that problem, and we have reasons to be happy.

At its simplest, the agreement is about easing trade between India and the EU. But in automotive terms, it resets a system that has been putting a massive penalty on luxury. Until now, a fully imported European car attracted customs duty of 110 per cent. That was only the opening act, so to speak. Once the car cleared customs, GST and compensation cess added another roughly 40 per cent. This was still just the ex-showroom price. Over that, you pay road tax and other smaller stuff. Stack it all together, and you realise that we are paying tax on tax, and then another bit of tax to actually take the car on the road. That’s why icons from Mercedes-Benz, BMW, Audi, Porsche and Ferrari ended up costing nearly double what they do abroad. Not because manufacturers wanted them to. Because the duties and taxes caused it.

Under the new FTA framework, import duties on fully built cars (CBUs) from the EU will be reduced in phases. The duties will drop down to 40 per cent once this goes in to effect and will lower themselves over time to 10 per cent. GST stays as is, but with a lower import tax, the GST paid will also get reduced, and following that, the road tax. That single adjustment vaporises a huge chunk of the tax burden. In simple terms, it’s the difference between window shopping and actually buying a car.

But there’s no point rushing to the showroom just yet. The agreement is a lot more intricate and time-consuming. For starters, this is not an overnight flip of a switch. The agreement still has to crawl through legal frameworks, regulatory approvals, and ratification by individual EU parliaments. Realistically, this could easily take close to two years before we see any meaningful tariff reduction in showrooms. And as stated above, even then, the move from 110 per cent to 10 per cent will happen in steps, over several years.

Secondly, these duty concessions are quota-based – limited to 2.5 lakh vehicles a year. There are price bands as well. Cars below `25 lakh will not be allowed to be exported into India as CBUs, and would need to be made here. This has been done to protect the current Indian car landscape.

What will change are the prices of top-end cars. Since this agreement is only valid for CBUs, cars assembled in India get no benefit. That means the everyday luxury cars, the ones that keep German brands ticking over, won’t become bargains. Your locally assembled E-Class, 5 Series or GLS remains exactly where it is – a fact backed by Mercedes-Benz India MD & CEO Santosh Iyer. He 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 EU, we do not foresee any price reduction for Mercedes-Benz vehicles from the FTA, in the foreseeable future.” This is no surprise. The reason these cars are made in India in the first place was the fact that import duties were so high. By making them in India, these cars attract a basic customs duty of around 16.5 per cent. There’s still some relief, though. The agreement also mentions that the duties for car parts will be fully abolished after five to ten years. So your big turbo kit might just enter India at the same price as Europe. As for the EVs, they are excluded from the agreement for the first five years, even CBUs. After the five years, they are expected to receive a similar benefit.

The cars that do qualify are high-performance, bespoke and low-volume cars, ones like the AMG, M and RS models. Even mass European brands with a performance bent, like the Golf GTI or Octavia RS, which have always been enthusiast favourites but commercial nightmares, suddenly become far more viable. For really high-end manufacturers like Ferrari and Lamborghini, the implications are even bigger. A lower duty regime gives all these more breathing room and the ability to price cars without immediately alienating buyers.

In terms of numbers, the potential is significant. Let’s take an example. Currently, a car with a base price (CIF – cost, insurance, and freight) of ₹50 lakh with 110 per cent import tax becomes ₹1.05 crore, adding ₹55 lakh. 40 per cent GST would add another ₹42 lakh. Combine all, and the price is ₹1.47 crore. But with the new FTA, this changes drastically. For a base CIF of ₹50 lakh, a 40 per cent import duty would come to ₹20 lakh, taking the total to ₹70 lakh. Add 40 per cent GST, which is ₹28 lakh in this case, and the ex-showroom price would still only reach ₹98 lakh. Bringing import duties down to 10 per cent brings a mind-boggling difference. In that case, you will only pay ₹77 lakh!

I can’t begin to imagine the possibilities here. With that much more cash in hand, you can go for more powerful powertrains, exclusive options, or even a higher model. We might even see brands experimenting more – new models, more powertrain options, and possibly even more body styles.

Before you get too happy, though, these are hypothetical, best-case scenarios. Currency movements – also noted by Santosh Iyer matter more. The falling rupee can reverse gains big time. Moreover, the final prices are dependent on the manufacturer. That means, if companies try to increase their margins, which they likely will, we might not see the full benefit of lower duties. Furthermore, they will also be careful not to completely collapse existing price hierarchies overnight – after all, exclusivity matters too.

All in all, the India-EU FTA is certainly a good thing for us enthusiasts. It promises us an age where European cars won’t cost a bomb. With car parts getting cheaper, service and spares will get cheaper too. Likely, the discounts won’t be as steep as we are expecting. But the benefits are certainly enough to make us smile.