India’s import policy has been formulated by the Foreign Trade Regulation Act, 1992 and the EXIM rules designed by the government. Generally, most of the goods are freely importable; however, there are certain products that require special permission to be imported because laws are in place to prohibit the entry of such goods.
The IEC certificate is mandatory to carry out import export business in India. Apart from goods that are freely importable in India, there are three categories of goods for import namely restricted goods, canalised goods and prohibited goods.
Table of Content
Categories of Imports
The 3 categories of imports are:
Restricted Goods
These goods can be imported only when a licence is obtained from the relevant authority. A list of restricted goods is present in the Indian Trade Clarification (ITC). Some of these goods include horses, asses, sheep including lamb for breeding purpose, reptiles (including snakes and turtles) chicory plants and roots, fresh or chilled potatoes, fresh or chilled, seed stone boulders, aluminium dross, electrical energy, etc. An import licence is only valid for 24 months for capital goods and 18 months for other goods.
Canalised Goods
These goods can only be imported by following specific methods and procedures of transport. Canalised goods include petroleum, agricultural products, grains, vegetable oils and some pharmaceutical products.
Prohibited Goods
These goods are listed under the ITC and strictly prohibited from being brought to India. Wild exotic animals are part of the prohibited goods list.
The steps to be taken to start import are:
- Selecting the commodity/product to be imported.
- Registration with the regional licensing authority.
- Selecting the overseas supplier.
Let us discuss all these steps in detail in the next sections.
Selecting the Commodity/Product to Be Imported
While selecting goods to be imported, certain rules that should be adhered to are given below:
- The product to be imported should have a market in the country and it must be commercially viable.
- The item to be imported must not be listed under the restricted items list present in the ITC classification of exports and imports.
- Prohibited items cannot be imported under any circumstances. For instance, tallow, fat or oils of animal origin are not permitted. Likewise, animal rennet and wild animals or their parts cannot be imported. Such activities are treated as crime by the Government of India. In addition, products like ivory cannot be imported into India.
There is another category of products that comes under the canalised list of items that are imported through similar agencies. It is important to acquire an import licenseto accomplish the task. ITC classification of exports has listed about 99 items, including the EXIM code, description, policy and also the type of restriction. Further information can be extracted from the Government of India website under the customs duty calculator schedule provisions.
It is important to register with licensing authority for the facilitation of imports. Customs will not permit the imports of the goods unless the IEC code is issued to an organisation. To import from Nepal or from Myanmar through Indo-Myanmar border, no registration is required if the total value of imports is less than ₹25000.
Selecting an Overseas Supplier
After deciding the product that an importer wants to import, and registering with the regional licensing authority, it is important for the importer to select an appropriate supplier. It is so because if a supplier is unreliable it will result in the loss of clients in addition to financial losses. There are a lot of factors that need to be considered before selecting a supplier, such as language differences, differences in payment methods and increased paperwork requirements.
In addition to this, there are legal considerations for finding the supplier located in another country because local rules apply as far as import and export restrictions are concerned. Moreover, the technical standards of the suppliers should meet the requirements and the specifications of the customers. Imported goods must not violate the intellectual copyright laws of a country. Also, it is important to identify the bearer of the insurance cost at different stages of transit of the goods.
Sources of Information
All the information related to the overseas supplier can be found using various resources. Some of them are mentioned hereunder.
- International Trade Promotions Organisation (ITPO)
- Trade Directories and Yellow pages
- Consulate Generals
- Trade representative of various countries in India and abroad
- Chambers of Commerce
- Directorates of Industries
- Agents of Foreign Suppliers in India
- Personal sources of the importer in other countries, like friends and relatives
Legal Considerations
Before starting dealing with an overseas supplier the importer must take into consideration the following:
- Is the trade restricted to any of the ends of the export-import process?
- The technical standards in the exporting country must meet the Indian requirements for import.
- Who would be held liable in case the imported product causes any harm
- It must be ascertained if the imported goods cause a breach of any intellectual property rights or not.
- Insurance costs at each stage of the export-import would be borne by which party.
- To avoid disputes and disagreements it is important to have a well drafted contract that must contain all the major as well as minute details related to the import-export contract.
Capability and Creditworthiness of Overseas Supplier
Successful completion of import transactions is dependent on the capabilities of an overseas supplier to abide by the commitment of the contract. The creditworthiness of the supplier is determined by the funds available at the disposal of the business entity. Hence, it is important to verify documents in an impeccable manner before awarding an import contract. Secret reports about the companies can be accessed from the banks and the Indian embassies located in the country from which the goods are to be imported.
If the supplier is reputed and credit worthy, its indenting agent will have its offices located in India. The contracts can, therefore, be easily completed by initiating consultations with them. An importer can also avail services offered by the credit information agencies for obtaining data pertaining to the commercial aspects of the supplier. Accurate addresses are available with the trade representatives of other countries stationed in India.
Role of Overseas Suppliers’ Agents in India
Many overseas suppliers have appointed their agents in India to look for importers that want to source the materials or finished goods from abroad. The agents procure orders from the various Indian parties and arrange for the supply of these goods from the exporting country. One of the advantages of having agents in the country is that they can be easily contacted in case of emergencies or damages to the goods, in case of unsatisfactory quality of goods, hassles in payment or documentation.
Other Factors
- Language differences may lead to misunderstanding in communication. The language has to be taken care of in case of making contracts, every printed material or product or document must be checked to ensure they are free from any language based on discrepancies.
- For the payment of imports, the importer has a wide choice. Therefore, the importer must select a method of payment which may be a letter of credit (documentary credit, or LC), documentary collection, advance payment receipt etc.
- Appreciate, comprehend and understand the business and social practices of the exporting country.
- The importer must check where the exporter raises his supplies from because same raw material can be available at preferential or non-preferential rates of duty which may directly affect the rate of duty importer needs to pay.
Finalising the Terms of Trade
The final terms of the contract can be finalised only after the samples of the product are that are to be imported have been analysed and verified that they meet the stated requirements and the creditworthiness of the exporter has been ascertained. Import contracts should be drafted carefully so that all the terms and conditions can be included in it.
Ambiguity regarding the specifications of the goods and exact terms of purchase, including the import price, mode of payment, port arrival, delivery schedule and replacement of defective products should be eliminated. The import contract should precisely include each and every major and minor detail of the contract so as to avoid any discrepancies at any stage of the import process.
How to Make Payment Against Imports
The following are the methods for payment against imports:
Consignment Purchase
Consignment purchase terms can be the most beneficial method of payment for an importer. In this method, an importer makes the payment after the goods are sold to the end user. If the goods are not sold, they are returned to the foreign supplier. Consignment purchase is considered the most risky and time-consuming method for an exporter.
Cash-in-Advance (Pre-Payment)
As per this method, an importer pays for the items prior to their shipment. The importer must trust that the supplier will ship the goods on time and that the goods will be as advertised. This method is very risky for importers. The importer is left with little course of actions he may resort to in case exporter provides poor quality goods or incomplete documentation.
There may be cases when the exporter does not deliver the consignment even after receiving the payment in full from the importer. This method generally is beneficial for the exporter but it can put the exporter at a competitive disadvantage. However, it is an inexpensive method, as it involves direct importer-exporter contact without the involvement of a commercial bank.
In international trade, Cash-in-Advance method of payment is used under the following circumstances:
- The importer is relatively new to the trade.
- The importer’s credit status is doubtful or unsatisfactory.
- The political risks are very high in the importer’s country.
The demand for the product is quite high and the seller does not have to accommodate an importer’s financing request in order to sell the merchandise.
Down Payment
In this method, an importer pays a fraction of the total import bill for the consignment in advance. The advantage of this system is that the exporter begins exporting without the importer or buyer paying the full price in advance. The disadvantage is that the exporter might not deliver the goods, even though the importer has paid the full amount.
Open Account
This method is used when there are several sources from which the products which are being sold by the exporter can be obtained. It may also be used when this method is prevalent in the importer’s country or when the importer has a strong credit rating. Under this method, the importer can make a payment at a specified date in future without even issuing a negotiable instrument to the exporter.
It is a risky method of payment from the perspective of the exporter. But the exporter may make arrangements like reducing the repayment period or retaining the owner title of the goods till the time payment is made to minimise his risk. There are disadvantages of this method but an open account with extended dating is becoming common place.
The exporters that accept payments through open account are now obtaining credit insurance to minimise their risk of non-payment. This method is the most expensive method for the exporter and is used in cases when there has been a long standing trade relation between the importer and exporter and they have already acquired a level of mutual trust where they think they qualify for such a risky method of transaction.
Documentary Collections
The terms and conditions and the obligations of the parties to a trade transaction (importer and exporter) have been illustrated in the “Uniform Rules for Collection” (URC) which was drafted by the Paris-based International Chamber of Commerce. Under this method, the bank acts as an intermediary for the importer and exporter alike and it is a useful method for both.
Here the bank settles the sale transaction through an exchange of documents which leads to the payment and simultaneously with the transfer of title. The importer pays for the consignment when he receives his goods and similarly the exporter also retains the title of consignment until he receives his payment. There may be a case when the importer does not pay immediately and agrees to pay at a later date and time.
Letter of Credit
Letter of credit is a formal bank letter issued by the bank for its customer. This letter of credit enables the customer, which may be a person or an organisation, to draw drafts on the bank. Letter of credit is a very effective method for the banks to transact and finance the export and import trade. It helps in the trade only through the documentation process.
The Uniform Commercial Code and the Uniform Customs and Practices for Documentary Credits published by the United States Council of the International Chamber of Commerce has put forward the covenants that govern the matters related to the issuance and the negotiability of the letter of credit. According to these covenants, the letter of credit must be issued in favour of a specific beneficiary, for a specific amount clearly stating how the payment to the beneficiary is to be made and under what conditions and it must have a specific expiry date.
Imports Where Some Exemptions Are Available
There are certain goods that are either not at all imported or there are certain restrictions on their import. Some of these exemptions are discussed as follows:
Import for Personal Use
It includes the following:
- Importers under this category do not need any IEC number. Import of goods by any person as passenger baggage is permitted to the extent admissible under the Baggage Rules 1994. But quinine of more than 500 tablets or = pounds powder or 100 ampules is not permissible.
- For any tourist, articles whose re-export is obligatory under the Baggage Rules shall be re-exported on his leaving India. Otherwise, those goods shall be deemed to be regarded as prohibited goods under the Customs Act, 1962.
- Any type of goods can also be imported through the post for personal use provided its c.i.f. value shall not exceed `2000. The goods should not be vegetable seeds exceeding 1 pound in weight, bees, tea, books and periodicals, alcoholic beverages, consumer electronic items (save hearing aids and lifesaving equipment and items for which import is canalised under EXIM Policy).
However, the customs duty as applicable shall have to be paid. As far as the procedure for personal imports is concerned it may involve sending of advance remittance if required by the overseas supplier, opening of letter of credit, retirement of documents and remittance of foreign exchange, customs clearance of the goods and payment of customs duty.
Import of Samples
Technical and trade samples of bona fide items, even those in the restricted in ITC (HS) Classifications of Export and Import items is allowed without a license provided the c.i.f. value does not exceed ₹1 lakh in one consignment save vegetable seeds, bees and new drugs by any importer. Tea samples above ₹2000 (CIF) in one consignment are not allowed without a license by any person connected with Tea industry.
Prototype Import
Prototype may be imported without license by paying requisite duty, by an actual user, industrial engaged in the production of or having industrial license or research, as the case may be, provided the number of items imported does not exceed 10 in number in a year.
Import of Computer/Computer Software
Computers including personal computers, Keyboards or monitor valued up to ₹1.50 lakh and ₹7000/- respectively can be imported freely without any license. Computer software can also be imported freely without license despite the fact computer software is regarded as consumer goods.
Passenger Baggage
Under the established rules, various kinds of articles can be imported up to a certain value limit depending upon the duration of stay of the passenger abroad and on the basis of Resident and Non-Resident Status of the passenger.
