The ink had barely dried on the India-EU Free Trade Agreement, and my phone started lighting up with messages from friends.
“A BMW 3 series for Rs. 45 lakhs! Is it real?”.
“Bhai, it’s time to start planning for that 911.”
There are good grounds for that optimism, even if it is premature. A slash in import duties from a staggering 110 percent to a tantalizing 10 percent sounds like the dawn of a new era for the Indian automotive enthusiast. And admittedly, it is wonderful to imagine a world where a German luxury sedan suddenly costs the same in Mumbai as it does in Munich. However, the reality is far more nuanced and, for the immediate future, significantly more expensive than the optimism suggests.
Terming the India-EU FTA a historic achievement, Mercedes-Benz India Managing Director and CEO Santosh Iyer said the agreement reiterates the rising relevance of the Indian economy on the global stage.
“The FTA is expected to strongly drive technological innovation and sustainable growth within the Indian automotive sector, with a sharp focus on future mobility. That said, the final implications of the agreement can only be determined once the fine print is available,” Iyer said.
To understand why your local dealership is not about to slash prices next week or even in the coming months, we must dissect the two acronyms that govern the Indian automotive luxury market: CBU and CKD.
CBU stands for Completely Built Unit. These are cars manufactured entirely in Europe—engine, transmission, paint, and interior all finished—and then shipped to India as a whole. Because they offer no local manufacturing value to India, the government has historically taxed them at a punitive 110 percent. This is why a Porsche 911 or a Mercedes-AMG G 63 costs more than double its international price when it lands on our shores.
CKD, or Completely Knocked Down, refers to cars shipped in parts and assembled at local plants in Pune, Chennai, or Aurangabad. To encourage this “Make in India” approach, the government taxes these kits at a much lower rate, roughly 15 to 35 percent. This is why your BMW 3 Series, Mercedes C-Class, or Audi A4 are relatively “affordable” compared to their fully imported siblings. The manufacturers have already optimized these prices based on the lower tax structure.
The new trade deal specifically targets the CBU category. This is where the headline number of 10 percent comes into play. However, it is not an overnight switch. The agreement outlines a phased reduction. The duty is expected to drop to 40 percent in the first year of implementation—which is still likely a year or two away pending ratification—and then gradually slide to 10 percent over the subsequent five to seven years.
This distinction is why the deal is a massive win for the “one percent” of the car market, but a non-event for the volume luxury buyer. The cars that will see the most dramatic price corrections are the high-performance and ultra-luxury models that simply do not sell in high enough numbers to justify a local assembly line.
Consider the BMW M cars, or the Mercedes-AMG lineup. These are pure imports. A duty drop from 110 percent to 40 percent could theoretically slash tens of lakhs off their ex-showroom prices. The same applies to the Porsche 911 range, which has always been a CBU import. Even the Land Rover Defender, mostly manufactured in Slovakia (an EU member state), falls under this umbrella. For the enthusiast eyeing a Defender 110 or a 911 Carrera, this deal is the difference between a dream and a purchase.
However, for the executive buying a Mercedes E-Class or a BMW X5, the price tag will likely remain unchanged. These cars are already CKDs. They do not attract the 110 percent duty today, so they cannot benefit from its removal tomorrow. Furthermore, manufacturers may choose to absorb some of the duty cuts on CBUs to offset currency fluctuations or to protect the residual value of existing customer cars.
The India-EU FTA is a landmark moment that will eventually democratize access to the world’s finest automotive engineering. It paves the way for a market where the best of Bavaria and Stuttgart is within closer reach. But for now, the champagne remains on ice. The price tags in the showroom windows will not change this morning, but the horizon certainly looks a lot faster and far more exciting. This might well be dubbed the “Har Ghar Sportscar Yojana” moment of the government.
