Chennai, Jan. 27 -- India's free trade agreement (FTA) with the European Union, announced on Tuesday, will allow European carmakers such as BMW, Mercedes-Benz India and Volkswagen Group to use imports more strategically to introduce newer models and test demand in India, without committing to local manufacturing. The deal, however, is unlikely to trigger immediate price cuts for most vehicles already sold in the country.

Under the FTA, India has agreed to cut tariffs on imports of fully built cars over a period of time from 110% to 10%, with a quota of 250,000 cars annually.

To be sure, the India-EU FTA does not go into effect immediately, with both sides now starting processes to ratify the deal. The agreement is expected to kick in on...