Luxury carmakers in India keep raising prices, eroding GST cut benefits

what happened

Luxury carmakers Mercedes-Benz, BMW and Audi have been raising prices in India regularly to offset higher costs. According to executives at the companies, these increases have almost entirely cancelled out the effect of the cut in goods and services tax (GST).

Under GST 2.0, introduced in September last year, the tax on luxury cars fell from 48-50% to 40%, and prices initially dropped by roughly 6.5-7.5%. However, two to three rounds of price hikes have clawed back about five percentage points of that reduction. A weaker rupee against the dollar and euro has made imported parts more expensive, and other input costs are also rising.

Luxury car sales are forecast to grow 11% in 2026, to around 58,000 units, after a 2% decline last year. That is a clear improvement, but still slower than the broader Indian passenger vehicle market, which is expected to expand 13-14%. Mercedes-Benz has made three price increases of 1-2% this year, Audi two, and BMW four.

why it matters

The luxury segment depends more on imports and has less local production, so a weaker rupee hits it harder than mass-market models. Buyers of mass-market cars are more price sensitive, yet GST 2.0 mainly helped that segment. Market watchers will be tracking the rupee exchange rate and whether demand holds up under further price increases.

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