FTAs and FDI Fuel Expansion in India’s Luxury Car Segment

India’s luxury car market is experiencing significant growth, driven by the rise of electric vehicles (EVs), increased foreign investment, and ongoing trade policy reforms.

The luxury car market, a niche segment in India, is now emerging as a key contributor to the overall expansion of the automotive sector. Growing sales, supportive regulatory frameworks, and heightened investor interest are prompting global luxury car manufacturers to view India as a strategic hub for both production and exports.

India Briefing examines key trends in market performance, the role of domestic and international players, developments in foreign direct investment (FDI), policy shifts, and prospects for future growth.

Leveraging FTAs for automotive growth

India continues to actively pursue strategic trade agreements to enhance market access and strengthen its position in the global automotive supply chain.

The India–UK Free Trade Agreement, signed on May 6, 2025, aims to reduce tariffs on 99 percent of Indian exports while improving access for British luxury vehicles in the Indian market. As part of the agreement, automotive tariffs will be reduced from over 100 percent to 10 percent under a specified quota. This is expected to benefit companies such as Tata Motors and its subsidiary, Jaguar Land Rover. However, duty concessions for UK petrol and diesel vehicles are limited by a predefined quota, and any resulting price adjustments are likely to occur gradually.

Similarly, under the proposed India–European Union (EU) FTA, import duties on luxury vehicles priced above INR 4 million (approximately US$46,765) may be reduced from the current 100 percent to as low as 10 percent. This move is intended to diversify India’s import sources and promote greater collaboration with European manufacturers.

In parallel, India is also responding to recent trade developments with the US. Following the imposition of a 25 percent tariff on Indian auto parts by the US in April 2025, India is considering tariff reductions on up to US$23 billion worth of US imports, including automobile components. These negotiations are ongoing and expected to conclude within the year.

Policies shaping the automobile imports and manufacturing

India’s regulatory environment has seen multiple reforms impacting the luxury automobile sector. In the Union Budget FY 2025–26, the central government reduced the Basic Customs Duty (BCD) on certain motor vehicles costing more than US$40,000 from 125 percent to 70 percent and exempted such vehicles from the Social Welfare Surcharge (SWS) of 10 percent.

India’s EV Incentive Policy, announced in March 2024, also plays a pivotal role. It reduces import tariffs on EVs to 15 percent for companies committing at least US$500 million to local manufacturing. The policy is designed to attract premium EV manufacturers like Tesla and integrate India into global EV supply chains.

Market performance and domestic trends

As per media reports published on December 28, 2024, India’s luxury car sales reached an estimated 50,000 units in 2024, reflecting a marked increase from 20,500 units in 2020. This growth trend appears set to continue in 2025, with projections ranging between 53,000 and 54,000 units. Knight Frank’s Wealth Report 2024 anticipates a 50 percent increase in ultra-high-net-worth individuals (HNWIs) by 2028. It reports that 46.5 percent of HNWIs aspire to own a luxury car, making it the most preferred luxury asset.

Alongside this, the consumer profile is evolving. Audi India reports that 42 percent of its customers are now under the age of 40 in 2024, suggesting a younger, more aspirational buyer base. This presents opportunities for luxury automakers to intensify their outreach to Tier-II and Tier-III cities.

Mercedes-Benz, for example, invested INR 1.5 billion (US$17.53 million) in converting 25 showrooms into luxury lounges in August 2024. Automobile brands like Aston Martin, Lamborghini, and Audi are also expanding their footprint beyond major metros. In terms of brand-wise performance in 2024, Mercedes-Benz led with approximately 20,000 units sold, marking a 13 percent year-on-year increase, followed by BMW at 10,556 units (5 percent growth). Audi, meanwhile, experienced a 16 percent decline in sales, attributed primarily to supply chain challenges, like rare earth element embargoes, tariff uncertainties, and global tensions.

Automobile manufacturing and FDI ecosystem in India

India permits 100 percent FDI under the automatic route across automobile segments, including luxury and electric vehicles. As per data from the Department for Promotion of Industry and Internal Trade (DPIIT), between April 2000 and December 2024, the cumulative FDI equity inflow in the automobile sector reached US$37,518 million, accounting for 5 percent of the total FDI.

Source: Department for Promotion of Industry and Internal Trade, India

Luxury car original equipment manufacturers (OEMs) are increasingly strengthening their local operations in India. Jaguar Land Rover, for instance, has begun assembling the Range Rover and Range Rover Sport domestically, resulting in a 60 percent surge in orders. Similarly, Mercedes-Benz and BMW have initiated local production of battery electric vehicles (BEVs), while Audi has expanded its retail network to 64 locations country-wide.

Despite these advancements, India continues to have limited market share for luxury automobiles compared to both emerging and developed economies. Growth is constrained by high taxation, steep import duties, and cautious consumer spending. By comparison, luxury vehicles account for approximately 5–8 percent of total car sales in emerging markets such as Brazil, Thailand, and Indonesia. In developed countries like Taiwan, Germany, and the UK, the share of luxury vehicles is significantly higher, at around 20 percent, 25 percent, and 15 percent, respectively.

Rise of electric luxury cars

Battery electric vehicles (BEVs) are emerging as a critical growth avenue within India’s luxury automobile market, driven by evolving consumer preferences and supportive policy incentives. Mercedes-Benz reported a 94 percent year-on-year increase in its BEV sales in 2024, led by strong interest in its electric quality (EQ) model lineup, including models like the locally manufactured EQS 580 SUV and the high-end Mercedes-Maybach EQS SUV. BMW also continued to gain traction, with 1,249 electric BMW and MINI vehicles delivered over the same period, making it the first luxury brand to surpass 3,000 cumulative EV deliveries in the country.

Popular offerings such as the BMW i7 and iX have performed particularly well, with the i7 leading its segment and the iX recording over 1,100 units sold in India. This momentum is being bolstered by a combination of improved urban infrastructure, the expansion of EV charging networks, and the growing presence of racetrack facilities that support the performance aspirations of luxury EV buyers. As the ecosystem matures, BEVs are becoming a compelling choice for consumers seeking a blend of innovation, performance, and environmental responsibility.

Way ahead

India’s luxury car market is experiencing a shift, one that blends aspiration, policy support, and industry outreach. From BEV adoption and trade reforms to expanding local manufacturing and youth-driven demand, the segment is well-positioned for consistent, value-driven growth. As foreign brands deepen their investment and domestic demand evolves, India can become an attractive destination for luxury automobile manufacturing and consumption.

(US$1 = INR 85.53)

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