Mumbai: Regular price hikes by luxury carmakers Mercedes-Benz, BMW and Audi to offset higher costs have eroded most of the gains of a cut in goods and services tax (GST).
The tax rate cut had initially led automakers to drop vehicle prices who have since gone on to raise rates as the rupee fell sharply against major currencies, especially the dollar and euro, making imported parts pricier. Automakers are also facing rising costs of other inputs.
Luxury car sales are forecast to grow 11% to around 58,000 units in 2026. While the performance looks like a strong rebound from a 2% decline last year, the projected growth rate trails the broader Indian passenger vehicle market which is expected to advance 13-14% this calendar year. The latter has already expanded nearly 20% in the first nine months, according to Mobility Global, an automotive forecasting and analytics firm.
ET BureauCars priced above ₹50 lakh, which account for around 1% of India's total car sales, are estimated to have grown 11.2-11.5% in the first nine months of 2026.
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"The segment is expected to end the year with around 58,000 luxury cars," Balbir Singh Dhillon, head of Audi India, told ET. Under GST 2.0, implemented in September last year, the tax on luxury cars was reduced to 40% from 48-50%, bringing prices down by around 6.5-7.5%. However, two to three rounds of price hikes since the GST cut have clawed back around five percentage points of the reduction, Dhillon said.
Santosh Iyer, managing director of Mercedes-Benz India agreed: "The benefits of GST 2.0 have shrunk for the luxury segment, due to consecutive price hikes, even though we continue to absorb the majority of the input costs. However, we were able to partially mitigate it with lower EMI offerings." Traditionally, India's luxury car sales have outpaced the overall market, albeit on a low base. However, GST 2.0 made mass-market cars more affordable, while currency volatility and geopolitical tensions weighed on luxury car demand, said Puneet Gupta, president of Mobility Global.
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"Mass-market cars are far more price sensitive," he said. "While the weaker rupee and rising input costs have affected the entire industry, luxury carmakers have been hit harder due to their higher dependence on imports and lower levels of localisation."
Mercedes-Benz has implemented three price hikes of 1-2% this year, while Audi raised prices twice. BMW India, the country's second-largest luxury carmaker, has taken four price hikes, citing logistics costs and currency volatility. Volvo Cars India managing director Jyoti Malhotra also indicated Monday that further increases are likely.