GTRI Flags Widespread Misuse Of DFIA Scheme, Calls For Forensic Audit Of Licences

New Delhi, Aug 18 (KNN) The Duty-Free Import Authorisation (DFIA) scheme, designed to reduce input costs for exporters, is being misused by certain companies and has effectively become a ‘licence to loot’ due to ambiguous policy definitions, weak enforcement, and judicial interpretations, the economic think tank GTRI said on Sunday.

The Global Trade Research Initiative (GTRI) urged the government to take immediate corrective action, warning that unchecked misuse of the DFIA could erode trust in India’s export incentive framework and push genuine exporters out of business.

However, GTRI said vague definitions, weak oversight, and permissive judicial rulings have created loopholes, allowing imports of items such as whey protein, saffron, walnuts, and lithium-ion batteries to be justified as inputs for products as routine as biscuits, pickles, or tractors. 

These goods, it argued, were never actually used in production, but licences were transferred and misused after exports were completed.

“On paper, biscuits requiring milk powder were linked to whey protein imports, confectionery needing synthetic flavours justified saffron, and snack foods dependent on palm oil were tied to specialty fats,” GTRI Co-founder Ajay Srivastava said, adding that pharmaceutical capsules using gelatin were substituted with collagen peptides mainly meant for cosmetics. 

He described the situation as ‘a legalised smuggling channel’, alleging collusion among traders, weak enforcement, and regulators turning a blind eye.

The think tank has called for an immediate forensic audit of licences issued over the past five years, recovery of duties from fraudulent imports, and suspension of DFIA benefits for high-duty items. 

It also recommended rewriting SION norms with precise product definitions and restricting DFIA to inputs that attract tariffs of 10 percent or less, to prevent misuse for luxury imports.

Responding to concerns, the commerce ministry said that the DGFT already has sectoral norms committees to examine complaints of misuse and misdeclaration. 

It added that proposals are being considered to review DFIA-linked imports over the past five years to assess unintended benefits and to exclude sensitive or high-duty goods from the scheme’s ambit.

GTRI cautioned that unless the government intervenes decisively, the credibility of India’s export promotion framework could be severely eroded, driving honest exporters out of the market. 

“The scheme began as a genuine lifeline for small exporters. Today it has been twisted into a parallel duty-free bazaar,” Srivastava said.

(KNN Bureau)