Trade negotiations between India and the European Union (EU) have reached a critical stage, and the outcome could significantly impact India’s luxury car market. If the proposed India-EU Free Trade Agreement (FTA) is finalized, European premium cars could soon become far more affordable for Indian buyers. At the heart of this discussion lies a major overhaul of import duties currently imposed on foreign vehicles.
Why Luxury Cars Are Expensive in India
At present, importing cars into India is a costly affair. The government levies high customs duties to protect domestic manufacturers and encourage foreign automakers to set up local production facilities. In some cases, the combined tax burden on premium imported vehicles goes as high as 110 percent, effectively doubling their original price by the time they reach Indian showrooms.
This tax structure has long been a barrier for customers who aspire to own European brands such as Audi, BMW, Mercedes-Benz, and others without paying a massive premium.
What the India-EU FTA Proposes
Under the proposed trade agreement, import duties on European cars are expected to be reduced in phases. Initially, the tax rate could be brought down to around 40 percent, with a long-term plan to lower it further to 10 percent. If implemented, this would mark one of the biggest policy shifts in India’s automobile import framework.
The agreement could allow nearly 200,000 vehicles per year to benefit from reduced duties, making the Indian market more attractive to European automakers.
Understanding CBU: Fully Built Imported Cars
CBU, or Completely Built Units, refers to cars that are manufactured entirely overseas and imported into India as finished products. These vehicles are transported directly from ports to dealerships without undergoing any local assembly or modification.
Since CBU imports do not generate local employment or industrial activity, they attract the highest customs duties. Vehicles priced above $40,000 face especially steep taxes, which is why many high-end European models are currently priced far beyond reach for most buyers.
If the FTA reduces CBU duties, several luxury models that were earlier considered unaffordable could enter a more competitive price range.
CKD: A Cost-Effective Alternative
CKD, or Completely Knocked Down, is a method where cars are shipped to India in parts and assembled at local plants. This approach allows manufacturers to benefit from significantly lower import taxes, as it promotes investment, employment, and technology transfer within the country.
Tax rates on CKD imports can be reduced further if key components such as the engine and gearbox are not pre-assembled. Brands like Mercedes-Benz, BMW, and Audi have successfully used this strategy to expand their presence in India while keeping prices relatively competitive.
What Changes After the Agreement?
Once the India-EU FTA comes into effect, automakers that currently avoid setting up factories in India may find it easier to sell their vehicles here. Increased competition is likely to result in better pricing, more model options, and quicker access to advanced automotive technologies for Indian consumers.
Customers can expect a wider selection of premium electric, hybrid, and performance vehicles at more reasonable prices.
Luxury Brands Already Manufacturing in India
Several global brands already operate assembly plants in India. Mercedes-Benz and BMW, for instance, assemble many of their popular models in cities like Pune and Chennai. However, niche sports cars and ultra-luxury variants are still imported as CBUs.
With reduced import duties under the FTA, even these high-end models could witness a substantial price drop, making luxury mobility more accessible than ever before.
