Pharma Industry Benefits: Import APIs and Formulations Duty-Free under an Advance License

India is often called the “Pharmacy of the World.” In FY 2024‑25, the country’s pharmaceutical exports crossed US $30.4 billion, marking strong growth and underscoring India’s global importance. Despite this scale, many Indian pharma exporters still face high costs when importing raw materials—active pharmaceutical ingredients (APIs), intermediates, excipients, and packaging. These input costs can significantly reduce export profit margins. The Directorate General of Foreign Trade (DGFT) offers a solution through the Advance License for the pharma industry.

The scheme allows duty‑free import of raw materials and inputs for manufacturing export products. This benefit helps reduce costs, improve working capital, and boost competitiveness for pharma exporters.

Under the Advance Authorisation scheme, you can import raw materials for manufacturing export products duty-free. There’s also an allowance for normal manufacturing wastage. For the pharmaceutical sector, this is a significant financial benefit.

Imports under a valid Advance License are exempted from a wide list of duties, including:

• Basic Customs Duty (BCD)
• Additional Customs Duty (CVD)
• Education Cess & Secondary and Higher Education Cess
• Anti-Dumping Duty (ADD), Safeguard Duty, and Transition Product-Specific Safeguard Duty
• Integrated Goods and Services Tax (IGST) and Compensation Cess (with pre-import condition compliance).

By eliminating these duties, the effective cost of imported raw materials (APIs, excipients, solvents, etc.) drops to zero, directly cutting your production cost. This is very helpful for competing in price-sensitive international markets for generics.

The Advance Licence is introduced to benefit the pharma industry, whether you produce APIs or finished formulations for export.

• For API manufacturers: You can import key starting materials (KSMs) and advanced intermediates (often not manufactured in India) duty-free to produce the final API for export.
• For Formulation Manufacturers: You can import duty-free materials like bulk APIs, excipients, specialised packaging materials (e.g., high-barrier films, pre-filled syringes), and other inputs needed to manufacture finished dosage forms (tablets, capsules, injections) for international supply.

The scheme also covers items consumed or utilised in the production process, such as fuel, oil, and catalysts, which are particularly relevant for chemical synthesis processes in API manufacturing.

Pharma exporters must note a specific policy provision: Advance Authorisation for pharmaceutical products manufactured through a Non-Infringing (NI) process (as defined in the Handbook of Procedures) is issued only to a Manufacturer Exporter. This is a key compliance point that distinguishes pharma applications from other sectors.

The Advance License helps enhance the GEO-economic standing of your pharmaceutical export-import business.

The Advance Authorisation Scheme supports the Make in India for the World initiative. It provides a clear financial advantage to Indian exporters across major manufacturing clusters.

To benefit from the scheme, you must adhere to clear timelines and value addition norms:

• Export Obligation (EO) Period: You have 18 months from the date of issue of the Authorisation to complete your export obligation.
• Import Validity: The Authorisation itself is generally valid for 12 months from the date of issue, within which you must complete your duty-free imports.
• Value Addition (VA): The minimum Value Addition required to be achieved under the scheme is 15%. This is calculated using the formula:

Where FOB is the Free-on-Board value of the export product, and CIF is the Cost, Insurance, and Freight value of the imported inputs.

For the DGFT to issue an Advance License, the quantity of inputs allowed for duty-free import is based on the Standard Input-Output Norms (SION) specified for your export product.

• • The DGFT has pre-notified SION for thousands of products. If your product (API or formulation) has an established SION, you can apply under that.
  • If no SION exists or the norm doesn’t fit your process, apply for Ad-hoc Norms Fixation with DGFT, using a Chartered Engineer certificate and technical documents.

The Advance License scheme, especially for the regulated pharmaceutical industry, involves complex compliance steps, including:

• Norms Finalisation: Determining if your product falls under SION or requires a new Ad-hoc Norms fixation, often needing a detailed process flow and technical justification.
• Required Documentation: Compiling documents like the IEC (Import Export Code), RCMC (Registration-cum-Membership Certificate), GST details, manufacturing proof, and the technical certificate from a Chartered Engineer.
• Online Application (ANF-4A): Submitting the detailed application on the DGFT portal, ensuring all input and export item details (including ITC(HS) Codes) are correct.
• Customs Registration & Bond/LUT: Executing a Bond or Legal Undertaking (LUT) with the Customs Authority to secure the duty exemption before imports are allowed.
• EO Fulfilment & Redemption: Accurate tracking of imports and subsequent exports, culminating in the final Export Obligation Discharge Certificate (EODC)/Redemption of the license.

Partnering with an experienced DGFT consultant is the most strategic decision. We ensure your application adheres to the latest Foreign Trade Policy provisions, accurately calculates your duty-free entitlement, and manages the entire post-licence compliance (EO fulfilment and redemption), protecting you from penalties and audits.

The DGFT Advance Licence is beneficial for Indian pharma exporters, helping reduce import costs, improve cash flow, and stay competitive in global markets. By smartly using this scheme, manufacturers of both APIs and finished formulations can source high-quality inputs, meet international regulatory standards, and maximise export profitability.

For pharma exporters aiming to strengthen their global presence, understanding and effectively using the Advance Licence can make the difference between maintaining margins and falling behind in a highly competitive international market.