ADVANCE AUTHORISATION SCHEME

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Context: The Advance Authorisation Scheme is a policy initiative of the Directorate General of Foreign Trade (DGFT) that aims to promote exports by allowing duty-free import of inputs that are used for producing export goods.

Details

• The Advance Authorisation scheme is based on input-output norms that specify the quantity and quality of inputs required for a given quantity and quality of output. The input-output norms are fixed by Sector-specific Norms Committees, which are expert bodies constituted by the DGFT.
• It aims to encourage the exporters and reduce the time and cost involved in norms fixation, the DGFT has developed a searchable database of Ad-hoc Norms that have been fixed in the past years for various export products. These norms can be used by any exporter without applying for a Norms Committee review, as per the provisions of the Foreign Trade Policy 2023.

Advance Authorisation Scheme

About

• The Scheme is a policy initiative of the Directorate General of Foreign Trade (DGFT) that aims to promote exports and reduce the cost of production for exporters.
• Under this scheme, exporters can import raw materials, components, intermediates and consumables without paying any customs duty, integrated tax or compensation cess, subject to the condition that they export the finished goods within a specified period. It also allows exporters to source inputs domestically from suppliers who have been issued Advance Authorisation for deemed exports.
• The scheme is based on the principle of input-output norms, which specify the quantity and quality of inputs required to produce a unit of output for export.
  • The input-output norms are determined by Sector-specific Norms Committees, which consist of representatives from various ministries, departments, industry associations and technical experts.
  • The committees periodically review and update the norms based on the changes in technology, production processes and market conditions.

Directorate General of Foreign Trade (DGFT) The Directorate General of Foreign Trade (DGFT) is an organisation under the Ministry of Commerce and Industry that oversees the Foreign Trade Policy of India. It aims to boost India's exports by formulating and implementing various schemes and incentives for exporters. It regulates the imports and exports of goods and services and can impose restrictions or prohibitions on them as per the national interest. It advises the Government on policy matters related to the domestic and international trade scenario and coordinates with other ministries and agencies on trade-related issues.

Features and Benefits for Exporters

• It provides duty-free access to inputs that are otherwise subject to high tariffs or are not easily available in the domestic market.
• It enhances the competitiveness and profitability of exports by reducing the cost of production and increasing value addition.
• It facilitates compliance with the rules of origin and other quality standards of the importing countries, as exporters can source inputs from any country without affecting their eligibility for preferential tariffs or market access.
• It encourages the adoption of new technologies and innovation in the export sector, as exporters can import inputs that are not manufactured or available in India.
• It supports the Make in India initiative by creating backward linkages and stimulating domestic production of inputs for exports.

Challenges and limitations

• It requires exporters to fulfil certain export obligations within a stipulated period, which may be affected by factors beyond their control, such as demand fluctuations, supply disruptions, trade barriers or policy changes in the importing countries.
• It imposes certain restrictions on the use and disposal of imported inputs, such as maintaining separate accounts, ensuring physical verification and re-exporting or destroying any surplus or defective inputs.
• It involves a complex and time-consuming procedure for obtaining Advance Authorisation, submitting documents, claiming benefits and monitoring compliance, which may increase the transaction costs and administrative burden for exporters.
• It exposes exporters to the risk of exchange rate fluctuations, as they have to repay the duty saved in Indian rupees at the prevailing rate at the time of import or export.
• It may create distortions in the domestic market by creating an artificial demand for certain inputs or affecting their prices and availability for other users.

Steps need to be taken

• Simplifying and streamlining the application process and documentation requirements for Advance Authorisation, using online platforms and digital tools.
• Extending the validity period and flexibility of export obligations, taking into account the nature and cycle of different products and industries.
• Rationalising and harmonising the input-output norms across sectors and products, based on scientific and realistic assessment of input requirements and output potential.
• Enhancing the transparency and accountability of Sector-specific Norms Committees, ensuring their regular consultation with stakeholders and timely revision of norms.
• Providing adequate support and guidance to exporters, especially small and medium enterprises (SMEs), on how to avail and utilise the scheme effectively.

Conclusion

• The Advance Authorisation Scheme is a valuable instrument for promoting exports and boosting economic growth. By addressing its challenges and improving its features, it can further enhance its contribution to India's trade performance and development goals

Must-Read Articles:

FOREIGN TRADE POLICY 2023: https://www.iasgyan.in/daily-current-affairs/foreign-trade-policy-2023

PRACTICE QUESTION Q. “Advance Authorisation Scheme” recently launched by the government, the scheme is related to; A) Education B) Skill Development C) Export-Import D) CyberSecurity Answer: C

https://pib.gov.in/PressReleasePage.aspx?PRID=1940171