Luxury Car Prices in India to Rise, Says Mercedes-Benz India

Luxury car prices in India are expected to continue increasing in the near term despite the conclusion of the India–European Union Free Trade Agreement, as adverse currency movements remain a dominant cost pressure. The agreement may support the broader economy, but its immediate impact on vehicle pricing is limited.
According to Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, the FTA will at best soften sharper price hikes rather than trigger any meaningful reductions in luxury car prices in India. He noted that expectations of immediate relief for buyers overlook the influence of exchange rates and input costs.
Iyer mentioned assumptions of dramatic price corrections following the FTA were misplaced. He explained that gains from tariff rationalisation are being offset by unfavourable currency movements and sustained cost inflation across the supply chain.
Currency Pressure Remains the Key Driver of Luxury Car Prices in India
Highlighting recent currency trends, Iyer pointed to the sharp appreciation of the euro as a major headwind. He said, “When we last met, the euro was at 105. Today it is already 109. In just 10 days, that is a further four percent movement.” Such volatility, he cautioned, neutralises much of the benefit arising from duty adjustments.
As a result, Mercedes-Benz India will continue its calibrated, quarter-on-quarter price increases, including a planned hike in the current quarter, regardless of the FTA announcement. “We cannot avoid price increases at this stage,” he said, emphasising that pricing decisions remain closely linked to exchange rates and input costs.
While the agreement is unlikely to materially impact locally assembled models, it will rationalise taxation across completely built units, completely knocked-down kits, and imported components. However, the structural pricing approach in India limits the direct pass-through of tariff savings.
Tariff Savings Rarely Passed Directly to Consumers
Iyer explained that tariff benefits have historically not been fully transferred to buyers. Vehicle pricing, he said, is not a simple calculation of European ex-factory prices plus duties and taxes, but a carefully calibrated outcome based on local market dynamics.
“If you take the European price, add the duties and GST, the car will cost close to six crore rupees. In India, it is priced at around 4.5 crore rupees. That clearly shows tariff impact was never directly passed on,” he said.
Looking ahead, Iyer stressed that the real significance of the FTA lies in moderating future increases rather than reducing current prices. Without the agreement, luxury car prices in India could have risen far more sharply over the coming years due to continued currency depreciation and cost inflation.
“In that sense, the timing of the FTA is actually appropriate. If this had not happened, cars would have become significantly more expensive,” he said.
Even after the agreement becomes operational, currently targeted for 2027, consumers should not expect notable price reductions. Any gains from lower tariffs are likely to be absorbed by exchange-rate movements and underlying cost structures, with pricing reviews only taking place once the full framework is implemented.
“The real advantage is macroeconomic,” Iyer said, adding that GDP growth, simplified trade, and improved business sentiment will be the enduring outcomes of the FTA. For luxury carmakers, the agreement offers greater stability, planning visibility, and the potential for improved product allocation and faster market launches, even as headline vehicle prices continue their upward trend.