India's Foreign Trade Policy (FTP) plays a crucial role in promoting exports and enhancing the competitiveness of Indian goods in the global market. One of the significant schemes introduced under this policy is the Advance Authorization Scheme (AAS), which allows exporters to import goods at zero or reduced duties, provided they meet specific criteria. This scheme is an essential tool for encouraging export activities, boosting the country's foreign exchange earnings, and providing support to industries that rely on imported raw materials for their manufacturing processes.
The Advance Authorization Scheme is designed to facilitate exporters in obtaining raw materials, components, and intermediate products at a concessional rate of customs duty. The scheme aims to make Indian products more competitive in the global marketplace by reducing the cost burden on exporters and manufacturers. In this article, we will explore every aspect of the Advance Authorization Scheme, its eligibility, benefits, procedure, and its importance in India’s trade ecosystem.
1. What is the Advance Authorization Scheme?
The Advance Authorization Scheme is a part of India's Foreign Trade Policy, which allows exporters to import inputs (such as raw materials, components, and parts) without paying customs duties, provided that the imported goods are used for the production of export goods. This exemption is subject to certain conditions, such as the requirement to export a specific quantity of finished products within a stipulated time frame.
The primary goal of the Advance Authorization Scheme is to promote export-oriented production by reducing the cost of inputs for manufacturers. By ensuring that exporters can source raw materials at lower costs, the scheme encourages export manufacturing, thereby enhancing the country’s foreign exchange earnings and creating job opportunities.
2. Objective of the Advance Authorization Scheme
The core objectives of the Advance Authorization Scheme are as follows:
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Promoting Export-Led Growth: By offering duty exemptions, the scheme incentivizes exporters to manufacture goods for export, thus contributing to India’s export growth.
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Reducing Cost of Production: Exporters can reduce their input costs by importing raw materials duty-free, making Indian products more price-competitive in the global market.
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Encouraging Value Addition: The scheme encourages the use of raw materials for value addition, thereby ensuring that exports consist of finished or semi-finished goods rather than raw materials.
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Increasing Foreign Exchange Earnings: By enhancing the competitiveness of Indian exports, the scheme helps generate valuable foreign exchange earnings.
3. Key Features of the Advance Authorization Scheme
The Advance Authorization Scheme has several key features that make it attractive to exporters:
a) Duty Exemption on Inputs
Under this scheme, exporters are allowed to import goods required for manufacturing export products without paying customs duties, subject to the fulfillment of export obligations.
b) Zero Customs Duty
The main feature of the Advance Authorization Scheme is the zero-duty benefit on imported goods. This helps reduce the overall cost of production for exporters.
c) Export Obligation
The authorization comes with a commitment to export the finished goods produced using the imported raw materials. The export obligation is determined based on the quantity of imported raw materials and the value-added nature of the exported product.
d) Duty Credit Scrips
In some cases, exporters may also earn Duty Credit Scrips, which can be used to pay customs duties on future imports. These credits are transferable and can be sold in the market.
e) Time Frame for Export
Exporters are required to fulfill their export obligations within a specified time frame. Typically, this time frame is 12 months, but it may vary depending on the nature of the goods and other factors.
f) Value Addition Criteria
The scheme requires exporters to meet a minimum value addition threshold. This ensures that the scheme supports the production of value-added products rather than mere re-exports of raw materials.
g) No Restrictions on Goods
The scheme applies to a wide range of goods, including raw materials, intermediates, components, and parts required for the manufacturing of export products.
4. Eligibility Criteria for Advance Authorization
Not all exporters are eligible for the Advance Authorization Scheme. There are specific criteria that exporters must fulfill to qualify for the scheme:
a) Exporter Status
Only exporters with a valid Importer Exporter Code (IEC) issued by the Directorate General of Foreign Trade (DGFT) are eligible to apply for the Advance Authorization Scheme.
b) Goods for Export
The Advance Authorization can only be issued for goods that are intended for export. The goods should fall under the chapters of the Harmonized System (HS) Code and be part of the exportable items specified by the DGFT.
c) Inputs for Export Manufacturing
The imported goods under the scheme must be used for the production of export goods. Exporters must be able to demonstrate that the imported raw materials are integral to the manufacturing process.
d) Fulfilling Export Obligation
Exporters must commit to fulfilling an export obligation within the specified period (usually 12 months) from the date of issuance of the Advance Authorization.
e) Compliance with Value Addition Norms
The exporter must meet the required value addition norms set by the DGFT. This ensures that the imported goods are used for value-added manufacturing and are not simply re-exported.
5. Types of Advance Authorization
There are several types of Advance Authorizations depending on the nature of the export goods and the raw materials involved:
a) Standard Advance Authorization
This is issued for the import of raw materials, components, and other inputs needed for the manufacture of export goods. It is issued based on the standard input-output norms fixed by the DGFT.
b) Advance Authorization for Annual Requirement
This type of authorization is issued to exporters who have an annual requirement of raw materials for manufacturing export goods. The authorization is issued for a specific quantity of inputs, with the exporter required to fulfill export obligations within a year.
c) Advance Authorization for Deemed Exports
This authorization is granted for inputs required for manufacturing goods that are sold to the government or deemed exports. The goods are not directly exported but are sold to designated buyers under specific conditions.
d) Advance Authorization for Physical Exports
This authorization applies to manufacturers who export goods directly, and the raw materials used in their production are imported under the scheme. The exporter must fulfill the export obligation within the stipulated time.
6. Procedure for Applying for Advance Authorization
The application procedure for Advance Authorization is straightforward but requires proper documentation and compliance with regulations:
a) Application Form
The exporter must submit an application for Advance Authorization using the prescribed form to the Directorate General of Foreign Trade (DGFT) or its regional offices. The form should include details of the export goods, input materials, quantity, and value addition.
b) Supporting Documents
The applicant must provide several documents to support their application, including:
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Importer Exporter Code (IEC)
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Proof of export orders or contracts
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Details of raw materials required for manufacturing
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Evidence of value addition capabilities
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Bank guarantees or bonds, if applicable
c) Approval and Issuance
Once the application is processed and the exporter meets the eligibility requirements, the DGFT issues the Advance Authorization. The authorization will detail the raw materials allowed for import and the export obligation to be fulfilled.
d) Export Obligation Compliance
The exporter must fulfill the export obligation as per the terms of the authorization. After completion of the export obligation, the exporter must submit proof to the DGFT, and the Advance Authorization is closed.
7. Export Obligation under Advance Authorization
The export obligation under the Advance Authorization Scheme refers to the requirement that the exporter must export the goods produced with the duty-free imported raw materials within a specified time frame. The export obligation is calculated based on the input-output norms, which specify the quantity of raw materials required to produce a given quantity of finished goods.
Typically, the export obligation is set at 6 times the value of imported goods (with some variations depending on the nature of the product). If the exporter fails to meet the export obligation within the prescribed time frame, penalties may be imposed, and customs duties may be levied on the imported goods.
8. Benefits of the Advance Authorization Scheme
The Advance Authorization Scheme offers several benefits to exporters and the Indian economy as a whole:
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Duty Exemption: The primary benefit of the scheme is the duty exemption on imported raw materials, which reduces the cost of production for exporters.
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Boost to Exports: By reducing input costs, the scheme helps exporters enhance their competitiveness in the international market, leading to increased export performance.
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Improved Cash Flow: By exempting exporters from paying customs duties upfront, the scheme helps improve their cash flow, enabling them to reinvest in their operations.
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Encouragement for Value Addition: The scheme encourages exporters to focus on value-added manufacturing, which is more profitable and generates higher foreign exchange earnings.
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Economic Growth: By promoting exports, the scheme contributes to economic growth, job creation, and infrastructure development in export-oriented sectors.
9. Challenges and Considerations
While the Advance Authorization Scheme offers several benefits, there are also certain challenges that exporters need to consider:
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Compliance with Export Obligations: Exporters must ensure they meet the export obligations within the stipulated time frame to avoid penalties.
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Documentation and Paperwork: The application process can be paperwork-intensive, requiring exporters to maintain proper records and comply with regulations.
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Changing Regulations: Exporters need to stay updated with changes in the Foreign Trade Policy and customs regulations to ensure continued compliance with the scheme.
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Complexity in Norms: The input-output norms and value addition criteria may be complex for certain sectors, requiring exporters to carefully plan their production processes.
In conclusion, the Advance Authorization Scheme is an essential part of India's Foreign Trade Policy, offering significant benefits to exporters by reducing the cost of inputs and promoting export-led growth. The scheme’s emphasis on value addition ensures that India remains competitive in the global marketplace, while also generating foreign exchange and creating employment opportunities. By understanding the eligibility criteria, application process, and export obligations, exporters can effectively leverage the scheme to enhance their business prospects. However, careful attention to compliance and regulatory requirements is essential for the successful utilization of the Advance Authorization Scheme.
As India continues to position itself as a global trade leader, initiatives like the Advance Authorization Scheme will play a crucial role in fostering export growth and economic development.
