MUMBAI, India -- Imported luxury cars are creating excitement here and enabling auto makers to test the market response before selecting models for local manufacture.

India has no restrictions on the number of cars an automaker can import, but they cannot be imported freely. Import duty is a whopping 120% and compliance laws and government policies are tough. Localization takes time and money. Approvals are given for small volumes only to manufacturers and only if after-sale service is assured.

Such barriers aim at promoting domestic automakers. They discourage import trade, protect the consumer and ensure safe and clean car imports, government officials say.

Elite buyers want luxury cars and are prepared to pay fancy prices and OEMs are eager to serve them. Foreign exchange is freely available and there are no export obligations. Carmakers vie with each other to import top-end models.

Domestic auto maker Hindustan Motors Ltd. can import the Pajero SUV, priced at $60,000, from its technical associate, Mitsubishi Motors Corp. But foreign joint ventures require completely built-up (CBU) import approval. Nevertheless, Mercedes-Benz India has managed to secure a blanket approval for all of its models. The M-Class SUV, plus the SLK and CLK convertibles ($80,000), are due to storm the market at anytime. Mercedes says it expects to double its sales.

General Motors India has approval to import its European Opel Vectra ($33,000), and is seeking approvals for Saab and Cadillac ($80,000 each). Ford India expects that Mondeo ($33,000) will recharge its declining Ikon ($12,500) sales and improve Ford’s bottom line. "We have taken a blanket clearance to launch any model over the next five years," says Ford India Vice President Randy Shockley at the recent Mondeo.

Things can become complicated, however. While Skoda Auto India has a greenfield plant and approval for assembling its Octavia, the Czech Republic auto maker will not be considered a domestic manufacturer until it actually begins production and cannot import CBU Octavias to India until then.