How the Advance License Scheme Enhances Global Competitiveness

In the early days of India, the exports of the newly independent companies were high because the taxes were so high that no one could work, due to which small-scale industries started declining. Still, later, when the new economic policy came, gradually the number of traders started increasing because there were some policies related to import and export in it, like the advance license scheme. Generally, exporters face numerous problems in international competition, which India has sought to address through the Advance License Scheme. This scheme offers several advantages to industries competing in the global market.

In today’s detailed article, we will try to know how the Advance License Scheme Enhances Global Competitiveness of Indian Industrial Products, but before that, we will know what is Advance License Scheme

What is the Advance License Scheme?

The Advance License Scheme is a scheme that enables duty-free imports of inputs that are physically incorporated in the export product. Advance License Scheme, also known as the Advance Authorisation Scheme. This scheme, governed by the Directorate General of Foreign Trade (DGFT) under the Foreign Trade Policy (FTP). In simple terms, the Advance License Scheme allows manufacturers and exporters to import essential inputs without paying customs duties, thereby reducing the cost of production and enhancing global competitiveness.

These inputs may include raw materials, fuels, etc. In return, exporters commit to fulfilling a specified Export Obligation (EO) within a defined time frame, which is generally 18 months. To take advantage of the Advance License Scheme, manufacturers or exporters will need the following documents, and it is mandatory to have these documents: IEC (Import Export Code), Digital Signature Certificate (DSC), export and import product details (BOE, invoices), and past export performance (for repeat licenses).

Objective of the Scheme

The primary objective of the Advance License Scheme is to:

• Reduce the production cost for Indian exporters.
• Improve the price competitiveness of Indian products in global markets.
• Encourage higher exports by providing a level playing field.
• Support Make in India and Atmanirbhar Bharat initiatives by empowering domestic industries.

How the Scheme Enhances Global Competitiveness

• Cost Reduction through Duty-Free Imports

The first and biggest advantage of the advanced license scheme is that it has a huge impact on the cost of the industries. This reduces the cost of the industries, which helps the industries a lot in competition, because import duties and taxes can significantly increase the input cost for manufacturers. Due to duty-free imports, the advance license scheme also reduces this burden, due to which allows manufacturers can offer even better prices in the international market.

• Improves Cash Flow and Liquidity

As we have already known from the introduction, in the early days of India, when India became independent, exporters or manufacturers had to pay a lot of taxes or customs duties, due to which companies had to keep a reserve in advance, which used to block or reduce the cash flow and liquidity of the company. But the advantage of the advance license scheme is that companies will not need to block their capital or make reserves, which will improve capital and working capital.

• Promotes Value Addition

For every industry, the brand image of the company, the image of the product, and the overall image in the market make a huge difference, because if the branding is good, then everything will be good. This scheme requires a minimum level of value additions, which is generally 15%.

This also empowers people who want to just assemble the product, but also want a brand image.

• Access to Quality Inputs

Nowadays, the competition has increased so much that new things are coming on the market one after the other, that too with high quality standards, due to which other companies also have to bring similar products, but how?

This is ensured by the Advance License Scheme because when they have less burden, less customs duty, and less cost, they will be able to import raw material of good quality standards and meet the international level competition.

Impact on Indian Industry

• Improved product quality
• Increased participation of MSMEs in global trade.
• Strengthened India’s image
• Enhanced foreign exchange earnings

Eligibility and Application

The scheme is available to:

• Manufacturer exporters
• Merchant exporters are tied to supporting manufacturers

Conclusion

The Advance License Scheme is more than just a tax exemption program because in the earlier times the companies of the country did not get that much benefit, and the licensing system was also very difficult, which was a big risk factor, and at this rate many companies quit, but with time India made changes and introduced it, which proved to be very beneficial for the manufacturers or exporters as it reduces their custom duty. But its manufacturers need some important documents; only then can they get the benefits of this scheme, like Cost Reduction through Duty-Free Imports, which improves cash flow and liquidity

In today’s competitive market, a licensing scheme is very beneficial, which every exporter and manufacturer should take advantage of.