The Duty Free Import Authorization (DFIA) scheme, designed to reduce input costs for exporters, has been hijacked by unscrupulous traders, turning it into what the Global Trade Research Initiative (GTRI) calls a "legalized smuggling channel." A combination of vague policy definitions, lax oversight, and permissive judicial rulings has allowed companies to exploit the scheme, importing high-value goods like whey protein, saffron, walnuts, and lithium-ion batteries duty-free under the guise of export production.

GTRI warns that without immediate action, this misuse could erode trust in India’s export incentive system and harm legitimate exporters. The think tank urges a forensic audit of DFIA licences issued over the past five years and recovery of duties from fraudulent imports. "The scheme has become a licence to loot," said GTRI Founder Ajay Srivastava, highlighting how traders exploit transferable licences and vague Standard Input Output Norms (SION) to import luxury goods unrelated to actual export products.

For instance, biscuits, which typically require milk powder, have been used to justify duty-free imports of whey protein concentrate. Confectionery needing synthetic flavors has been linked to saffron imports, and pharmaceutical capsules requiring gelatin have been replaced with costly collagen peptides used in cosmetics. Such discrepancies reveal how traders exploit broad SION categories, costing the exchequer billions.

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The commerce ministry acknowledged the issue, stating that the Directorate General of Foreign Trade (DGFT) has norms committees to address misuse complaints. It is also considering screening past DFIA imports to identify unintended benefits and exclude high-duty or sensitive items from the scheme.

GTRI recommends suspending duty-free imports of high-value items like whey protein and walnuts under DFIA, rewriting SION norms with precise, product-specific terms, and limiting the scheme to low-duty inputs (10% or less) to curb exploitation. "What began as a lifeline for small exporters has been twisted into a duty-free bazaar for a cartel of traders," Srivastava said, calling for stricter enforcement to restore the scheme’s integrity.

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