India’s recent Free Trade Agreements (FTAs) – particularly the landmark deal with the UK, and ongoing negotiations with the European Union (EU) – have stirred excitement among luxury car buyers expecting big price cuts. However, a closer look at the facts reveals a more nuanced reality.
The most significant benefit will not be dramatic instant discounts but rather improved access to niche models, better allocation, and a gradual reduction of duties on a limited number of imported vehicles.
For most luxury models already assembled or partially assembled locally, any price drops will be modest and phased over time.
Understanding How FTAs Work (for Luxury Cars)
Import duties on fully built cars (CBUs) in India are very high, exceeding 100% in many cases. The primary goal of FTAs is to bring these tariffs down, but this reduction is typically gradual and subject to specific conditions.
- CBU vs. CKD: The crucial distinction to understand is between Completely Built Units (CBUs) and Completely Knocked Down (CKD) or partially assembled kits. The majority of luxury cars sold in India, including popular models from brands like Mercedes-Benz, BMW, and Audi, are assembled locally from CKD kits. This process already attracts a much lower import duty (around 30-35% on parts), meaning these vehicles will see minimal direct impact from CBU duty cuts under FTAs. FTAs primarily target the high tariffs on CBUs.
- Phased Reductions and Quotas: Duty cuts under FTAs are not immediate or universal. They are tied to a phased reduction over several years and are often constrained by quotas. This means only a limited number of cars each year will qualify for the lower duty.
Fact Check: Key Details on FTAs
- India-UK FTA: Signed on July 24, 2025, this agreement is a significant development. It will gradually reduce import duties on UK-manufactured CBUs. The tariff on high-end petrol cars (above 3000cc) and diesel cars (above 2500cc) will be slashed from the current 100%+ to 30% in the first year and then to just 10% by the fifth year. This reduction, however, is subject to a quota.
- Quota: The initial annual quota for these heavily discounted imports is set to start at 10,000 units, increasing to 37,000 vehicles by year five.
- India-EU FTA: Negotiations are ongoing, with both sides working to finalize the agreement by the end of 2025. While the final terms are still being discussed, the framework is expected to be similar to the UK deal, with phased reductions and quotas aimed at benefiting EU automakers like Mercedes-Benz, BMW, and Audi.
What Automakers Are Saying
Luxury car manufacturers have consistently stated that FTAs will not lead to sudden, massive price drops on their core, locally assembled models.
- Mercedes-Benz India: Executives have clarified that because a vast majority (90-95%) of their volume comes from locally assembled models, the duty cuts on CBUs will only affect a small portion of their sales.
- BMW & JLR: Both brands have echoed similar sentiments. JLR has noted that its India lineup is heavily localised. While cost reductions on their CKD models will be limited, they anticipate that the FTA will make it economically viable to introduce more imported special-edition or niche models that were previously too expensive to bring in.
What Buyers Will Actually See: Model Allocation Over Price Drops
| What FTAs Might Improve | What They Likely Won’t Change Much |
| Access to a greater variety of CBUs, rare trims, and custom builds. | Large, sudden price drops on locally assembled models. |
| Faster delivery and improved availability for niche imports. | Drastic falls in taxes on mainstream luxury cars. |
| Slight price easing for a limited number of fully imported vehicles under quota. | Abrupt re-pricing of the entire cost structure (shipping, currency, logistics, etc., which remain significant). |
Timeline & Key FTA Details to Watch
- The India-UK FTA, signed in July 2025, will begin its phased duty reduction and quota system immediately upon enforcement. The most significant tariff reductions are expected to occur over the next five years.
- Negotiations with the EU are progressing, and a final deal is expected by year-end. This will be a major milestone, as it will offer a similar framework to UK brands, potentially making models from Germany, Italy, and France more accessible.
What Buyers Should Do to Take Advantage
- Check the Origin: Before you get excited about potential savings, verify whether the specific model you desire is a CBU (imported) or a CKD/CKU (locally assembled). CBUs will benefit more directly from FTAs.
- Watch for Announcements: Pay close attention to official announcements from luxury brands once duty phasing begins. They may roll out special offers, early booking perks, or specific allocations for imported models tied to the new tariffs.
- Compare “Niche” vs. “Mainstream”: For high-volume luxury SUVs and sedans that are already produced locally, the gains will be marginal. The real, meaningful savings will be on limited-edition, performance-oriented, or highly exclusive imports.
- Factor in Other Costs: Remember that other significant costs, such as shipping, currency fluctuations, logistics, and dealer margins, will not be directly impacted by FTAs.
Conclusion: Expectations vs. Reality
FTAs are a promising development for India’s luxury car market, but buyers must manage their expectations. They are unlikely to bring radical, across-the-board price reductions.
Instead, the most tangible benefits will be seen in the expansion of model lineups, making previously unattainable niche cars, special editions, and bespoke variants a more realistic option for Indian consumers.
For most luxury car buyers, looking out for GST 2.0 reforms and festive season discounts from brands will offer more immediate and predictable price benefits than the gradual, quota-based relief offered by FTAs.
👉 Stay connected with Motozite to get real-time updates on FTAs, model allocations, pricing adjustments, and special offers as the trade landscape evolves.