The conversation around India’s automotive policy just got louder. Ola Kallenius, Chairman of Mercedes-Benz Group AG, has called on the Indian government to reduce high import tariffs on cars, arguing that the country’s automotive industry is now strong enough to compete without protectionist barriers.
His request comes at a critical moment, with the global luxury car business eyeing India as a growing market, and with policy reforms like GST 2.0 already reshaping how cars are taxed in India.
Here’s what his arguments are, why they matter, and what could change.
Why Ola Kallenius Urges Tariff Cuts
1. A Mature Local Ecosystem
Kallenius believes that India’s local auto industry has reached a level of capability that no longer requires heavy protection from imports.
The supplier base, assembly plants, and component manufacturing have become more competitive. In his words to The Economic Times, for entry-level and mid-market models, the protection provided by high tariffs is becoming redundant.
This shows confidence in the “Make in India” initiative’s success.
2. Tapping Untapped Market Potential
Though India is now the world’s third-largest passenger vehicle market (with sales of approximately 4.3 million units in FY25), luxury vehicles account for a tiny fraction, around 51,000 units, which is well under 1% of total car sales.
Kallenius argues that high tariffs are a major reason many potential buyers are priced out. By reducing duties, the market could grow significantly, benefiting all stakeholders.
3. Comparative Advantage in Global Trade
Kallenius has also pointed out that reducing import duties can open up two-way benefits. India would gain more access to foreign brands and technologies, while foreign OEMs could be incentivized to invest more locally, creating jobs, boosting exports, and improving product variety.
This is especially relevant with ongoing discussions between India and the European Union (EU) on a Free Trade Agreement (FTA), which could allow for reciprocal tariff reductions, a key point of negotiation.
4. Boost for Consumer Benefit and Innovation.
Lower tariffs could directly lead to lower prices for luxury cars, making high-end features, better safety, and advanced technology more accessible.
This, in turn, could force all players, both foreign and domestic, to innovate and improve their offerings to remain competitive. For buyers, it means more choices and better value; for manufacturers, it’s a cleaner path to global competitiveness.
Context: Where India Stands Now
- Passenger Vehicle Market: India’s annual passenger vehicle sales are around 4.3 million vehicles.
- Luxury Car Segment: Luxury car sales are small in comparison, at only ~51,000 units in FY25.
- Current Tariff Structure: Imported luxury vehicles face a complex and high tax burden. A combination of customs duties (ranging from 60% to over 100% on fully built-up cars), GST, and other cesses makes them significantly more expensive than in many other countries. For instance, cars with a cost, insurance, and freight (CIF) value over USD 40,000 attract a customs duty of 100%. The government’s recent policy change, which removed the compensation cess from luxury cars, has already led to a marginal reduction in the total tax burden on certain high-end models, a move welcomed by the industry.
- Trade Agreements: India is actively engaged in FTA talks with the EU. These negotiations are seen as a potential framework for reduced duties and a more integrated trade relationship.
What Lower Tariffs Could Mean: A Look at Potential Impacts
| Stakeholder | Possible Benefits |
| Luxury Car Buyers | Lower on-road prices, increased access to a wider range of imported models and features, more choice and better value. |
| Foreign Automakers | Better sales volumes and scale, higher incentive to localize parts, and possibly more direct investment in India. |
| Domestic OEMs / Suppliers | Stronger competition pushing quality and innovation; potential for new partnerships and technology transfer; growth in exports. |
| Government | Increased overall automotive sales leading to higher tax revenue through volume, a boost in foreign direct investment (FDI); and technology transfer that could benefit the broader economy. |
Challenges & Trade-offs to Consider
- Revenue Loss: The government collects a significant amount of customs revenue from imports. A reduction would need to be offset by higher sales volumes or other tax sources.
- Domestic Producers’ Concerns: Local automakers, especially those producing premium models, may fear being undercut by cheaper imports. Policy must balance protection with the long-term goal of fostering a globally competitive industry.
- Regulatory Complexity: Any tariff reduction must be accompanied by clear rules and standardization, particularly regarding safety and emission norms, to ensure a level playing field and support for the new influx of vehicles.
- Trade Diplomacy: Tariff cuts are rarely unilateral. They are likely to be tied to complex Free Trade Agreements, which involve intricate negotiations with major economic blocs like the EU.
Final Thoughts
India’s auto market is evolving rapidly. With a stronger local supply chain, rising demand, and global automakers like Mercedes-Benz looking to deepen their presence, the case for lower car import tariffs is no longer theoretical, becoming a practical necessity.
Ola Kallenius’s appeal reflects more than just a business interest; it signals broader market maturity and a potential shift in India’s industrial policy approach.
For luxury car buyers, if tariffs do fall, this could be your opening to access models previously priced out of reach. For automakers, this is a chance to compete not just on cost but on value, innovation, and sustainability.
Want real-time updates on policy changes, luxury car price shifts, or tariff news? Follow Motozite to stay ahead of every game-changer in the Indian automotive world.
