The Advance Authorization Scheme (AAS) is a flagship initiative under India’s Foreign Trade Policy (FTP). Designed to enhance the competitiveness of Indian exporters, the scheme allows duty-free import of inputs required for the production of export goods. By minimizing financial constraints and reducing production costs, the scheme promotes exports, enabling Indian businesses to thrive in global markets.Here, we delve into the nuances of the Advance Authorization Scheme, including its features, eligibility criteria, benefits, and operational procedures.
Objectives of the Advance Authorization Scheme
The primary aim of the Advance Authorization Scheme is to encourage Indian exporters to enhance their global footprint by providing them with cost-effective mechanisms to source raw materials. It seeks to:
- Reduce the cost burden on exporters by waiving import duties on inputs.
- Enhance the quality and competitiveness of Indian goods in international markets.
- Promote the “Make in India” initiative by boosting domestic manufacturing for export purposes.
- Foster economic growth through increased foreign exchange earnings.
Key Features of the Scheme
The Advance Authorization Scheme comes with distinct features that cater to the dynamic needs of exporters:
- Duty-Free Imports:
Exporters can import inputs such as raw materials, components, and consumables without paying customs duties. This includes Basic Customs Duty (BCD), Integrated Goods and Services Tax (IGST), and Compensation Cess. - Value Addition:
Beneficiaries must achieve a stipulated value addition in their export goods, which is calculated as:
Value Addition (%)=Export FOB Value – Import CIF ValueImport CIF Value×100\text{Value Addition (\%)} = \frac{\text{Export FOB Value – Import CIF Value}}{\text{Import CIF Value}} \times 100Value Addition (%)=Import CIF ValueExport FOB Value – Import CIF Value×100
Typically, a minimum of 15% value addition is required unless specified otherwise. - Export Obligation:
Exporters must fulfill an export obligation equivalent to at least six times the duty saved on imports. This obligation must be completed within 18 months from the date of issue of the Advance Authorization. - Eligibility for Multiple Sectors:
The scheme is not limited to specific industries. It applies broadly to sectors such as textiles, chemicals, engineering goods, electronics, pharmaceuticals, and handicrafts. - Transferable Scrips:
Advance Authorizations are non-transferable; however, duty-free inputs obtained under the scheme can only be used for the production of specified export goods. - Deemed Exports:
Supplies to categories like export-oriented units (EOUs) or projects funded by international organizations also qualify under the scheme.
Eligibility for Advance Authorization Scheme
To avail of the benefits under the Advance Authorization Scheme, applicants must meet the following criteria:
- Exporters of Physical Goods:
Manufacturers or merchant exporters supplying physical goods for export are eligible. - Deemed Exporters:
Entities involved in deemed exports, such as supplies to EOUs, SEZs, or mega power projects, can apply. - Third-Party Exports:
The scheme extends to third-party exporters who are listed as supporting manufacturers. - Product and Input Linkage:
Exporters must demonstrate a clear linkage between the inputs imported duty-free and the final export product. - Foreign Trade Policy Compliance:
Applicants must adhere to the guidelines outlined in the Foreign Trade Policy and the Handbook of Procedures.
Benefits of the Advance Authorization Scheme
The scheme offers several advantages to exporters, enabling them to optimize their resources and improve profitability:
- Cost Reduction:
By eliminating import duties, the scheme reduces production costs, allowing exporters to price their goods more competitively in international markets. - Cash Flow Management:
Duty exemptions ensure that exporters do not face immediate financial outflows, improving cash flow and liquidity. - Global Competitiveness:
Lower input costs enable exporters to offer high-quality products at competitive prices, strengthening their position in global markets. - Encouragement for Innovation:
The cost savings allow exporters to invest in research, innovation, and product development, fostering higher value-added exports. - Support for SMEs:
Small and medium enterprises (SMEs) benefit significantly, as the scheme helps them overcome financial barriers and expand their export operations. - Employment Generation:
Enhanced export activity leads to increased manufacturing and operational demands, contributing to job creation in various sectors.
Application Process for Advance Authorization
The application process for obtaining Advance Authorization is streamlined and involves the following steps:
- Online Application:
Exporters must submit their application through the Directorate General of Foreign Trade (DGFT) online portal. - Supporting Documents:
Applicants need to provide essential documents such as:- Export and Import Code (IEC)
- Bill of Export or Supply
- Justification for the inputs and their quantities required for manufacturing the export product
- Issuance of Authorization:
Upon approval, the DGFT issues the Advance Authorization, specifying the allowed quantity of inputs and export obligations. - Post-Export Compliance:
After fulfilling export obligations, the exporter must submit proof of export and a statement of fulfillment of value addition to the authorities. - Monitoring and Verification:
DGFT and customs authorities monitor compliance with the terms of the authorization to prevent misuse of the scheme.
Challenges and Solutions
While the Advance Authorization Scheme offers substantial benefits, exporters face challenges such as:
- Complex Documentation: Navigating the application process requires precision and attention to detail.
- Export Obligation Fulfillment: Fluctuations in global markets can affect exporters’ ability to meet obligations.
- Awareness Gaps: Many SMEs lack awareness of the scheme and its advantages.
To address these issues, the government and trade organizations must offer:
- Training programs and workshops to simplify application procedures.
- Support mechanisms for exporters struggling with export obligations due to unforeseen circumstances.
- Awareness campaigns to educate potential beneficiaries about the scheme.
Conclusion
The Advance Authorization Scheme is a vital instrument for empowering Indian exporters and bolstering the country’s economic growth. By facilitating duty-free imports and encouraging value addition, the scheme enhances the global competitiveness of Indian products while supporting domestic manufacturing.As exporters leverage the benefits of the scheme, India continues to strengthen its position as a prominent player in global trade. For businesses aiming to thrive in international markets, the Advance Authorization Scheme is not merely an opportunity but a stepping stone to success.