FTAs to Boost Demand, Not Slash Prices: Mercedes-Benz India’s Santosh Iyer

The India-UK Free Trade Agreement (FTA) India-EU FTA and ongoing talks are unlikely to result in significant price cuts for Mercedes-Benz vehicles in India, as the company has robust local production. However, they hold substantial potential to drive economic growth and demand, according to Santosh Iyer, Managing Director and CEO of Mercedes-Benz India.

In an interview with Autocar Professional, Iyer outlined how these trade agreements could enhance market access and fuel demand for luxury vehicles, while reinforcing Mercedes-Benz’s commitment to free trade as a cornerstone of its global strategy.

Iyer tempered expectations about price cuts from the India-UK FTA, finalized last week, emphasizing, “To expect any price drop is a fallacy.” “Even today, 95% of the cars we sell in India are locally produced,” he noted, adding that these incur duties of just 15–16%, which minimizes the impact of the FTA’s reduced tariffs, set at “10–15%” for imported vehicles within a quota system.

The India-EU FTA, under negotiation with a target completion by late 2025, is expected to follow a similar structure, offering limited pricing benefits due to Mercedes-Benz’s localized manufacturing in Pune, where models like the C-Class and G-Class are assembled.

Despite the muted impact on pricing, Mercedes-Benz India is looking at FTAs as vital for economic and market expansion. “As a multinational, we have always supported free trade because it’s the cornerstone of international business,” he said. “Opening up trade always helps markets, it helps economies, and it helps companies as well.”

The India-UK FTA, which slashes tariffs on 99% of Indian exports and lowers duties on British goods, aims to double bilateral trade to $120 billion by 2030. Similarly, the India-EU FTA promises enhanced access to the European market, where Mercedes-Benz has a strong presence.

“Access to a larger economy like the UK, maybe the US as well, helps overall in driving demand,” Iyer said, highlighting the potential for these agreements to stimulate India’s economy and boost luxury vehicle sales.

The India-EU FTA, in particular, could strengthen Mercedes-Benz India’s role in the company’s global supply chain by facilitating access to one of the world’s largest markets.

While Iyer did not explicitly detail export plans, the agreement could build on Mercedes-Benz’s history of exporting models like the GLE SUV to Europe, enabling India to serve as a strategic hub for high-quality, cost-competitive vehicles.

This aligns with India’s growing economic clout, with Iyer noting that the doubling of per capita GDP to $2,800 over the past decade has driven Mercedes-Benz’s growth, with 100,000 cars sold in the last six years compared to 50,000 cars in the prior decade.

“With FTAs, the expectation is trade improves, per capita income improves, and better demand also for us at the top end of the segment,” he said, projecting “growth at a much faster pace.”

The FTAs may heighten competition from European brands like Jaguar Land Rover, which could leverage lower tariffs for niche models. However, Iyer remains confident in Mercedes-Benz’s localization strategy and the innovation driven by Mercedes-Benz Research and Development India (MBRDI).

MBRDI’s advancements in AI-driven design and virtual testing underscore India’s influence in Mercedes-Benz’s global operations. “We are all keenly admitting a positive outcome from any of these free trade agreements,” Iyer said, signaling a strategic focus on leveraging FTAs to drive economic growth and demand while maintaining price stability through local production.