Iyer says free trade pact will soften cost escalation, not reverse price increases.
28 Jan 2026 | 518 Views | By Ketan Thakkar
Luxury car prices in India are expected to continue rising in the near term, despite the conclusion of the India–European Union Free Trade Agreement (FTA), as currency headwinds remain a significant cost driver.
The historic pact will drive the economic movement, but at best it will act as a ...
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Luxury car prices in India are expected to continue rising in the near term, despite the conclusion of the India–European Union Free Trade Agreement (FTA), as currency headwinds remain a significant cost driver.
The historic pact will drive the economic movement, but at best it will act as a buffer against sharper price increases in the mainstream luxury car market, according to Santosh Iyer, Managing Director and CEO of Mercedes-Benz India.
Speaking to Autocar Professional, Iyer said expectations of immediate or dramatic price reductions following the FTA were misplaced, as currency movements and cost pressures continue to offset tariff-related gains.
Pointing towards the sharp appreciation of the euro in recent weeks as a key headwind. Iyer reminded, “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.” He cautioned that such currency shifts neutralise much of the benefit arising from duty rationalisation.
As a result, the largest luxury car maker in India will continue with its calibrated, quarter-on-quarter price increases, including a planned increase in the current quarter, irrespective of the FTA’s announcement. “We cannot avoid price increases at this stage,” he said, noting that pricing decisions remain closely linked to exchange rates and input costs.
While the FTA may not have a large impact on locally produced models, it will rationalise taxes across completely built units, completely knocked-down kits, and components.
Iyer explained that tariff savings have historically never been fully passed on to consumers. He said vehicle pricing in India is not a simple function of ex-factory prices in Europe plus duties and taxes but is instead carefully calibrated for the local market.
“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 said the real value of the FTA lies not in price cuts but in preventing prices from rising even faster. Without the agreement, he said luxury car prices could have increased far more sharply over the next few years due to 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, Iyer said consumers should not expect meaningful price reductions. Any benefit from lower tariffs is likely to be absorbed by exchange-rate movements and cost structures, with pricing decisions reviewed only once the full framework is in place.
“The real advantage is macroeconomic,” Iyer said, adding that GDP growth, simplification of trade, and improved business sentiment will be the lasting outcomes of the FTA. For the luxury car market, he said, the agreement provides stability and planning visibility, rather than a short-term pricing trigger.
Over the longer term, Iyer said the FTA could support higher product allocations, faster time-to-market, and a more resilient cost structure for manufacturers operating in India, even as headline vehicle prices continue to trend upward.