QCO exemption on VSF a breather to textile exporters: SIMA

Advance Authorization Scheme (AAS) facilitates the exporters to import duty free inputs including raw materials and fulfill the export obligation within a specified period.

In a recent development, the Directorate General of Foreign Trade (DGFT) had issued a notable exemption concerning the importation of specific goods. Among these goods are viscose staple fibre and various steel items, exempted from quality control orders (QCOs) under the advance authorisation (AA) scheme. This scheme permits duty-free importation of input goods integrated into export products. It is important to note that this exemption applies solely to goods used in exports, not those intended for the domestic market. Initially announced through Notification No. 71/2023 on March 11, 2024, the exemption was limited to QCOs from the Ministry of Steel and the Department for Promotion of Industry and Internal Trade (DPIIT). Subsequently, the DGFT broadened the scope to include QCOs from the Ministry of Textiles.

This notification follows a decision by the Ministry of Commerce and Industry, made approximately two months earlier, rejecting a blanket exemption from QCOs for imported input goods under the advance authorisation scheme, following discussions with industry representatives.

Shedding light on the implications of this notification for textile mill owners, Dr SK Sundararaman, Chairman, Southern India Mills' Association (SIMA), in an interview with Bizz Buzz, said that the exemption granted to import the QCO mandated fibres for export under the AAS is thus a saviour to the export community concentrating on fibre consumption, that are not manufactured in the country and those that are not available in the required quantum in the domestic market. Dr Sundararaman holds an MBBS degree and an MBA from Cambridge University, UK, With extensive experience in the realm of Technical Textiles in India and Technical Education. He has held key positions as past Chairman of CII, Coimbatore, and Chairman of the Indian Technical Textile Association (ITTA)

Can you explain the recent exemption granted by the Directorate General of Foreign Trade (DGFT) in the import of certain goods from Quality Control Orders (QCOs) under the advance authorization scheme?

Smooth flow of raw materials is essential to gain global competitiveness as the textile raw material accounts for 60-70 per cent of the cost of production of yarn and 25-30 per cent of cost of production of finished products. Adequate availability of buyer-specified raw material is also essential to grab and sustain the export market opportunities especially the nominated business. The Government has imposed 5 per cent basic customs duty and applicable Cess on man-made fibre to protect the interests of the producers. In order to help the exporters to remain competitive, the Advance Authorization Scheme (AAS) facilitates the exporters to import duty free inputs including raw materials and fulfill the export obligation within a specified period.

With the implementation of BIS (Bureau of Indian Standards) QCO on Viscose Staple Fibre (VSF) with effect from 29.03.2023, import of the same was permitted only if the foreign manufacturer has obtained BIS License, thus creating difficulties to meet the concluded contracts for Indian manufacturers/exporters of Viscose based textile products. The user industry never thought that the recently brought Quality Control Orders (QCOs) would prohibit the imports under AAS. Therefore, the export performance got significantly affected and several exporters started losing their market opportunities

Will this exemption impact exporters, particularly those operating under the advance authorization scheme, Export Oriented Units (EOUs), and units in Special Economic Zones (SEZs)?

Manufacturers of MMF textile products require at least 9 billion kg of MMF fibre in addition to the existing production of 4 billion kg to achieve the stipulated domestic and export target by 2030.

The Indian manufactures of VSF value added products have entered into long term international contracts through nominated business, where the foreign buyer decides the manufacturer from whom the raw materials/intermediaries are to be procured for the manufacturing of the export product by the exporter. The restriction placed on imports by way of QCO compliance was playing a spoilsport. The exemption granted to import the QCO mandated fibres for export under the AAS is thus a saviour to the export community concentrating on fibre consumption, that are not manufactured in the country and those that are not available in the required quantum in the domestic market.

The exemption is granted on a pre-import condition. Could you elaborate on what this means for imported input goods used in manufacturing products for export?

Duty free import of raw material is the core benefit of AAS. ‘Pre-import condition’ means that the raw material should be imported first, which has to be physically incorporated in the export product (value addition) and then the export should take place. In other words, the exporter can’t export first using the duty paid material possessed by him and then import raw material duty-free. Items that are subject to pre import condition have been indicated in Appendix 4J or SION Norms (Norms that specify the quantity of inputs required to produce a unit of output for a particular product).

As the pre-import condition has been notified, the compliance is mandatory that would protect the interests of domestic VSF manufacturer.

The recent notification exempts the import of input goods from QCOs published by the steel ministry, DPIIT, and the textiles ministry. How does this benefit the exporter, especially considering the challenges with specific suppliers mentioned?

By way of blanket exemption granted by DGFT relating to all QCOs issued by the Ministry of Textiles, no certificate or endorsement is required from the office of BIS for each import or export transaction. The procedure of obtaining an endorsement from the Quality Control Department, if mandated, would have greatly impacted the time factor for completion of the Export Order.

The exemption has no impact on the business of the domestic fibre producers, since the move by the DGFT only facilitates the fulfillment of export obligation fixed under AAS, through manufacture and export of value-added textile products by the AAS license holder.

Indian VSF textiles and clothing product exporters can sustain and meet the export commitments of nominated business and global brands only with the recent notification, as these buyers demand different variant fibres and also certain fibres that are not manufactured by the domestic manufacturer.

In what ways do you foresee this exemption contributing to boosting textile exports, as mentioned by the South India Mills’ Association (SIMA) in the media?

A foreign manufacturer of Indian QCO mandated products is bound to obtain BIS License under the Foreign Manufacturer Certification Scheme (FMCS). Only one VSF manufacturer in UK and Austria have been granted BIS license till date and the applications filed by other foreign manufactures are still under process. The exemption Notification issued by the Central Government has nullified the dependence on the BIS certified foreign manufacturers, thus enabling the exporting-manufacturers to procure the specified fibres from the international market and meet the export commitments. In addition, smooth flow of such fibres is essential to grab the emerging export opportunities.

Could you explain the impact of Quality Control Orders (QCOs) on the availability and pricing of domestic viscose staple fibre (VSF), as mentioned in the media?

Indian VSF textile value chain has always been facing raw material shortage to the tune of 20 per cent even before the announcement of QCO. While the VSF segment is expected to grow at a CAGR of 14 per cent, dependence on single indigenous fibre supplier will trap the segment in a no-growth environment. The manufacturers of high value-added VSF textile products were fulfilling their requirement through imports after meeting the major portion of their requirement through domestic procurement. The country has been importing from over 20 countries. Since BIS has issued license to only one manufacturer for their facilities located at UK and Austria and yet to consider the applications from several other countries even after a passage of more than a year from the implementation of VSF QCO, the availability of Bamboo and other specialty VSFs have become null. This has seriously affected the business opportunities created by Indian manufacturers who made tireless efforts through R&D, in addition to pumping huge investments. Prior to QCO implementation, the country has been importing around 8,000 MTs (metric tonnes) of VSF on a monthly basis which has come down to around 3,000 MTs, resulting in more demand for domestic VSF.

The Ministry of Chemicals and Fertilizers has issued QCOs for polyester fibre. Do you believe a similar exemption for polyester fibre and its raw material products under the advance authorization scheme is essential for the growth of the synthetic fibre sector?

It is essential to exempt all the manmade fibres that are covered under the QCOs to be exempted for imports under Advance Authorization Scheme, as the export opportunities for PSF textiles and clothing products is several folds by value and volume when compared to VSF since the PSF is termed as the future growth engine for the Indian textiles and clothing industry.

Therefore, we have appealed to the Ministry of Chemicals and Fertilizers to issue similar notification on par with VSF for the polyester and other manmade fibres that are covered under QCOs and also exempt all the specialty fibres that are not manufactured in the country from the QCOs.