Hi Sanchit,
I have driven both the BMW 320d and the Merc C-200 Kompressor.
1. BMW 320d
I rented this car on a whirlwind trip of Europe couple of years back with my family. Drove over 4000 km in 10 days. I recommend the diesel not because of economy but because of performance. It beats the pants off the 320i. The handling is superb, very neutral (no drama). The steering is superb, the car just goes where you point it. I was quite at home doing sweeping turns at speeds exceeding 150kmph. In Germany, I took this baby upto 210!. (When I later dropped speed to about 100 because of traffic, my wife was complaining that we were "crawling"). However, ride is a bit harder than the Merc. On the tenth day, after the initial euphoria had worn off, we wished the suspension was just a bit softer.
Conclusion: This is a out and out drivers car. Needs to be driven hard to really get the best out of it. If you (or your dad) have the opportunity or the inclination to really push it, you won't be dissappointed.
2. Merc C-200 Kompressor
I rented this car for a week in Dubai earlier this year. Work took me to Abu Dhabi every day, even twice a day. Was driving around 250 to 500 km daily. Very nice suspension, and "agile" handling. Pretty quick, especially because of the "Kompressor", but not quite in BMW territory. But very comfortable, although the rear seat space could be better.
Conclusion: Nicely rounded vehicle. Drive it yourself, and its quite fun. Let someone else drive, and its pretty good too. Gets recognised in the 5-star hotel foyer. etc.
Basically, at this level, you don't decide based on a dhobi list of features, or on price, or (god forbid) on fuel economy. You decide based on the attributes of each brand, what they stand for, and what your personal desires are from your car. They appeal to different kinds of people, depending on what they are looking for. Performance, or comfort. etc.
So, how to decide?
Well, let's put it this way:
The BMW is the mistress.
The Merc is the wife.
You choose.
Cheers