The Advance Authorization Scheme (AAS) is a crucial policy framework introduced by the Government of India under the Foreign Trade Policy (FTP) to facilitate and promote exports by providing duty exemptions on imported inputs used for export production. The scheme enables exporters to procure raw materials, components, and consumables duty-free, significantly reducing production costs and enhancing the competitiveness of Indian products in global markets.The Advance Authorization Scheme is a key initiative under India’s Foreign Trade Policy designed to facilitate the export of goods by allowing duty-free import of inputs required for manufacturing. This scheme provides relief from customs duties, Integrated Goods and Services Tax (IGST), and compensation cess on materials that are physically incorporated into export products.
Key Features of the Advance Authorization Scheme
- Duty Exemption:
The scheme allows duty-free import of raw materials and inputs that are physically incorporated in the final export product. This includes basic customs duty, additional customs duty, and education cess. - Eligibility Criteria:
Exporters holding a valid Importer Exporter Code (IEC) are eligible to apply. Both manufacturer-exporters and merchant-exporters tied with supporting manufacturers can avail of this benefit. - Value Addition Norms:
Exporters must fulfill a minimum value addition requirement, typically ranging between 15% and 20%, depending on the product and the industry. Value addition is calculated based on the Free On Board (FOB) value of exports versus the Cost, Insurance, and Freight (CIF) value of imports. - Validity Period:
Advance Authorizations are valid for 12 months from the date of issuance for import purposes. The export obligation must generally be fulfilled within 18 months, though extensions may be granted in specific cases. - Deemed Exports:
Supplies made to categories such as Export-Oriented Units (EOUs), Special Economic Zones (SEZs), and projects under international competitive bidding are eligible for the scheme. - Transferability Restrictions:
Advance Authorizations are non-transferable, ensuring that benefits are utilized only by the original holder to boost genuine export production.
Benefits of the Advance Authorization Scheme
- Cost Reduction:
By allowing duty-free imports, the scheme lowers production costs, enabling exporters to offer products at competitive prices. - Improved Cash Flow:
The scheme helps maintain cash flow for exporters as they do not have to pay upfront duties on inputs. - Global Competitiveness:
Lower production costs translate to better pricing in international markets, improving the global competitiveness of Indian exports. - Simplified Procedures:
The online application and approval process under the Directorate General of Foreign Trade (DGFT) reduces administrative hurdles, encouraging participation. - Incentivizing Exports:
The scheme aligns with the government’s vision of promoting export-oriented growth and Make in India initiatives.
Application Process for Advance Authorization
- Online Application:
Exporters must submit an online application through the DGFT website, specifying the details of the export product, inputs required, and export obligations. - Calculation of Input Requirements:
The quantity of inputs eligible for duty-free import is determined based on Standard Input Output Norms (SION) or self-declared norms approved by DGFT. - Issuance of Advance Authorization:
Upon approval, DGFT issues the Advance Authorization, allowing the import of specified inputs duty-free. - Fulfillment of Export Obligation:
Exporters are required to fulfill their export obligations within the stipulated period, supported by valid proof such as shipping bills and customs declarations. - Redemption and Closure:
After fulfilling the export obligation, exporters must file an Export Obligation Discharge Certificate (EODC) with DGFT to close the authorization.
Challenges Associated with the Scheme
- Stringent Compliance:
Meeting value addition and export obligation requirements can be challenging for some exporters, especially in volatile market conditions. - Complex Documentation:
Despite digitization, exporters often face issues with documentation and procedural clarity. - Delays in Approval:
Processing delays at DGFT or customs can impact production schedules and export timelines. - Limited Awareness:
Many small and medium-sized exporters are unaware of the scheme’s benefits or find it difficult to navigate the application process.
Government Support and Reforms
To make the Advance Authorization Scheme more accessible, the government has undertaken several initiatives:
- Simplification of Procedures:
Enhanced digital platforms and automated systems ensure quicker processing of applications. - Outreach Programs:
Regular workshops and seminars are conducted to educate exporters about the scheme and its benefits. - Inclusion of New Sectors:
The scope of the scheme has been expanded to include more industries and sectors.
Conclusion
The Advance Authorization Scheme is a cornerstone of India’s export promotion strategy, providing significant financial relief to exporters and enabling them to compete effectively in international markets. By eliminating duties on imported inputs, the scheme boosts export-oriented production and aligns with the government’s larger goal of fostering a self-reliant and globally competitive economy.While challenges persist, ongoing reforms and increased awareness are expected to enhance the scheme’s reach and effectiveness, making it an indispensable tool for achieving sustainable export growth. For exporters seeking to optimize their operational costs and expand their global footprint, the Advance Authorization Scheme represents a critical opportunity.