India and the European Union are set to announce the conclusion of their long-negotiated Free Trade Agreement (FTA) as early as Tuesday, in what has been dubbed the “mother of all deals,” according to Reuters. One of the headline concessions in the talks is India’s agreement to slash import duties onhigh-end cars from the EU. However, India’s largest luxury carmaker by sales, Mercedes, says the near-term impact looks marginal.
According to Reuters, New Delhi will immediately reduce tariffs on certain cars priced above 15,000 euros to 40% from the whopping 110% as of now, with a further cut to 10% over time. The pact is expected to create a free market of nearly 2 billion people with a combined economic output of about $27 trillion, Financial Express reported.
Yet for ‘No foreseeable price reduction’
“Mercedes-Benz welcomes the Indo-EU FTA as it is a historic achievement,” Santosh Iyer, managing director and chief executive officer of Mercedes-Benz India, told FinancialExpress.com. “We have always advocated free trade, as it brings down trade barriers, leverages the mutual strengths of global economies, and mitigates supply chain uncertainties.”
However, Iyer added that “with more than 90% of Mercedes-Benz India’s sales volume comprising ‘Made in India’ locally produced models and approximately only 5% 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.”
CKD, or completely knocked down units, refers to vehicles that are imported in parts and assembled locally, while CBU, or completely built units, are fully imported cars.
Mercedes-Benz rules out immediate benefits
Currently, CKD imports attract a 16% duty, while CBUs face tariffs of up to 110%, on average. Under the FTA framework being discussed, the focus is on reducing duties for CBUs to 40% initially and eventually to 10%.
Given that over 90% of Mercedes-Benz India’s sales come from CKD models, any relief on CBU tariffs would apply only to a small sliver of its portfolio. “The final implications of the FTA can only be determined once the fine print of the agreement is available to us,” Iyer cautioned.
There is also a timing issue. The FTA is “likely to come into effect only by mid-2028”, owing to the time required for legal processes, multi-level ratification and detailed implementation, according to the additional information provided.
A weaker rupee blunts potential gains
Even where tariffs do come down, currency movements could wipe out much of the benefit.
The rupee depreciated by 19% against the euro in 2025, a trend that “will erode any benefit arising from lower duty import for CBUs in the next couple of years,” the additional information noted. For luxury carmakers that price imported vehicles in line with global costs, a weaker domestic currency can offset duty reductions, keeping showroom prices elevated.
A broader auto opening — but phased and capped
From a sectoral perspective, the proposed FTA still marks India’s most aggressive move yet to open up its highly protected auto market.
India currently levies tariffs of 70% and 110% on imported cars, a level often criticised by global auto executives, including Tesla chief Elon Musk, Reuters reported. The government has proposed slashing duties to 40% immediately for about 200,000 combustion-engine cars a year, according to one of Reuters’ sources, though this quota could still change.
Lower import taxes are expected to benefit European automakers such as Volkswagen, Renault, Stellantis, BMW and Mercedes-Benz, which already manufacture locally but have struggled to scale up partly due to high tariffs, Reuters said. The cuts could allow carmakers to test the Indian market with a broader range of imported models before committing to deeper local manufacturing.