The Advance Authorization Scheme: A Gateway to Boosting Exports
The Advance Authorization Scheme (AAS) is a crucial component of India’s export promotion strategy, designed to support exporters by enabling them to import raw materials and components without paying customs duties, under the condition that they will use them to manufacture and export finished goods. This scheme helps Indian businesses become more competitive in the global market by reducing the cost of production. It plays a pivotal role in enhancing India’s export potential, particularly in sectors such as textiles, engineering, chemicals, and pharmaceuticals.In this article, we will explore the details of the Advance Authorization Scheme, its benefits, eligibility criteria, the application process, and its impact on India’s export industry.
What is the Advance Authorization Scheme?
The Advance Authorization Scheme is a part of India’s Foreign Trade Policy (FTP) and provides exporters with the opportunity to import raw materials and components duty-free, provided they use these inputs to manufacture products for export. Essentially, the scheme allows exporters to avoid customs duties on goods that are to be exported.Under this scheme, exporters can import inputs such as raw materials, semi-finished goods, components, and packaging materials, without paying the applicable customs duties. However, they must fulfill the condition of exporting the finished goods within a specified period.
Key Features of the Advance Authorization Scheme
- Duty-Free Import of Inputs
The most significant feature of the scheme is the provision for duty-free import of materials used in the manufacture of export goods. This is especially helpful for exporters in cost-sensitive sectors, as it reduces their input costs, thereby making their products more competitive on the international market. - Pre-Export and Post-Export Duty-Free Imports
There are two types of authorizations:- Pre-Export Authorization: This allows exporters to import raw materials before they have made the actual export. The authorization is granted based on the anticipated export turnover.
- Post-Export Authorization: In this case, the exporter imports the materials after having exported the goods, making it more flexible for businesses.
- Export Obligation
The scheme mandates that the exporter must fulfill an export obligation, meaning the goods manufactured with the imported inputs must be exported within a specific time frame, generally 12 to 24 months, depending on the nature of the goods. - Input-Output Norms (IO Norms)
The scheme is governed by Input-Output Norms (IO Norms), which define the quantity of raw materials or components needed to produce a specific quantity of export products. These norms are set by the Directorate General of Foreign Trade (DGFT) and ensure that the exporter is allowed to import only what is necessary for production. - Exemption from Duty
Under the scheme, exporters are also exempt from paying countervailing duties (CVD), special additional duties (SAD), and goods and services tax (GST) on the inputs used in manufacturing goods for export. - Value Addition Requirement
A significant requirement under the Advance Authorization Scheme is the value addition criterion. The exporter must add value to the imported raw materials, and a minimum percentage of value addition is mandated to ensure that the goods exported are substantially manufactured in India.
Eligibility for the Advance Authorization Scheme
Not all businesses are eligible for the Advance Authorization Scheme. To qualify, the exporter must meet the following criteria:
- Exporters of Goods
The scheme is available to exporters who manufacture goods and have the intention to export them. This includes exporters of both physical goods and services under certain conditions. - No Minimum or Maximum Export Criteria
There is no minimum or maximum export turnover requirement, making the scheme accessible to both small-scale and large-scale exporters. - Compliance with Export Obligation
The exporter must fulfill the export obligation within the prescribed time limit, typically 12 to 24 months. Failure to meet the export obligation may lead to penalties and the imposition of duties. - No Default in Export or Duty Payments
The exporter should not have any history of default in exporting goods or in making duty payments under previous schemes. - Valid Importer Exporter Code (IEC)
The exporter must possess a valid IEC issued by the DGFT. This is a mandatory requirement for all exporters and importers in India.
Process of Applying for the Advance Authorization Scheme
The process of applying for the Advance Authorization Scheme is straightforward but requires attention to detail. Here’s a step-by-step guide:
- Online Application
The application for Advance Authorization must be submitted online through the DGFT’s e-Portal. The applicant needs to fill out the prescribed form and upload supporting documents. - Documentation
Required documents include:- IEC code certificate.
- Exporter’s bank details.
- A copy of the purchase order or export contract.
- Details of the imported inputs and their expected use in the manufacturing process.
- Approval from DGFT
Once the application is submitted, the DGFT will review the application, verify the details, and approve the authorization if everything is in order. In some cases, the application may be referred to other government agencies for technical clearance. - Issue of Authorization
Upon approval, the DGFT will issue the Advance Authorization, which specifies the quantity of inputs that can be imported duty-free and the conditions attached to the authorization. - Export Obligation Compliance
The exporter must meet the export obligation by shipping the finished goods within the prescribed time frame. Failure to comply with this obligation may result in penalties or the imposition of duties.
Benefits of the Advance Authorization Scheme
- Reduced Costs for Exporters
By eliminating customs duties on raw materials and components, the Advance Authorization Scheme significantly reduces the cost of production for exporters. This, in turn, helps them offer competitive prices in global markets. - Boost to Export Performance
The scheme encourages export-oriented production, allowing businesses to scale up their operations and enhance export performance. It supports India’s goal of becoming a global manufacturing hub. - Improved Profitability
With the reduction in input costs, businesses can achieve better margins on their exported goods, leading to improved profitability. - Flexibility in Sourcing Inputs
The scheme provides flexibility to exporters in sourcing raw materials from international suppliers, ensuring that they can get the best prices for their inputs. - Access to International Markets
Exporters who participate in the scheme gain access to global markets by producing high-quality goods at competitive prices, which helps in expanding their international reach.
Conclusion
The Advance Authorization Scheme is a vital tool for India’s exporters, helping them reduce costs and improve competitiveness. It facilitates the duty-free import of raw materials for export production, boosting the country’s export performance and contributing to economic growth. By adhering to the eligibility criteria and complying with export obligations, exporters can make the most of this scheme and gain a significant edge in the global market.For businesses looking to expand their reach internationally, understanding and utilizing the Advance Authorization Scheme can lead to long-term success in the competitive export environment.