The proposed India–European Union Free Trade Agreement (FTA) is unlikely to materially alter luxury car pricing in the near term, but could play a meaningful role in supporting demand, portfolio flexibility and long-term supply-chain integration, according to Santosh Iyer, Managing Director and CEO, Mercedes-Benz India.
Speaking to The Financial Express, Iyer said the FTA needs to be viewed through a broader macroeconomic lens rather than a narrow tariff-led narrative. “We have always advocated FTAs because they bring large economies together. The India–EU FTA, in effect, creates one of the biggest free trade zones globally, covering not just goods but services, people, technology and supply chains,” he said.
Iyer on link between rising per capita income and luxury car demand
Iyer pointed to a clear correlation between rising per capita income and luxury car demand in India over the past decade. “As India’s per capita GDP has grown, our sales have doubled. Over the long term, the FTA should support economic growth and income levels, which directly helps our business,” he said.
While tariff rationalisation is welcome, Iyer cautioned against overstating its immediate impact. “Lower tariffs simplify structures and improve consumer choice, but that is only a limited advantage. The bigger benefit lies in the long-term trickle-down effect on the economy and sentiment,” he said.
FTA timing and currency pressure
The timing of the FTA discussions is particularly relevant given currency pressures. Iyer noted that the rupee depreciated nearly 19% against the euro last year and continues to remain volatile. “With a weakening currency, we are forced to take periodic price increases. Any rationalisation of tariffs, including discussions around CKD duty reduction, could help mitigate future price hikes once the FTA comes into effect,” he said, adding that the agreement is unlikely to be operational before 2027–28.
On demand, Iyer said the luxury car market is highly sentiment-driven. “Capital markets were relatively muted last year, which impacted sentiment. Even before tariff changes kick in, positive signals around the FTA could lift investor confidence and support demand in the short term,” he said.
Lower duties could also allow faster introduction of niche and halo models, though Mercedes-Benz already offers most of its global portfolio in India. “We have a track record of bringing CBUs first and then localising them, as seen with models like the GLS Maybach. Tariff rationalisation helps us introduce cars quicker and at better price points, subject to exchange rates,” Iyer said.
On localisation, Iyer stressed that India will continue to remain a manufacturing and assembly base. “There is still a meaningful gap between fully imported and locally assembled cars. As long as that gap exists, localisation makes sense, and we see no risk to our production footprint,” he said.