Understanding the advantages of import trade and its role in the modern economy
23 January, 2024
Imports are the purchase of goods and services from another country. The word import involves the use of the word port, as most foreign goods arrive via ports. A product is generally imported from a foreign country if it is not possible to produce the product locally or the cost of production is too high. Import of raw materials and inputs may also be done so that the product can be manufactured domestically.
Advantages of import trade
Some of the advantages of import trade are:
New product introduction:
An importer can introduce a new product which is not found in the home country, but demand for the product exists.
Cost-benefit:
If the cost of production is high in the home country, getting it imported from a foreign country at a lower cost will reduce the product cost.
High-quality products:
Some countries have expertise in specific products, which can be well-received as imported products. Indian tea, Colombian coffee, and Japanese cars are examples of high-quality import products.
Essential inputs:
Another advantage of import is the availability of products that are essential for the country. We import products like oil and coal, which have national importance as fuel and input for power generation.
What are the import formalities?
Import trade must be carried out while fulfilling various government regulations. The importer has to arrange for the licenses and compliances before the import trade, the logistics and warehousing of the imported products, and meeting custom clearance requirements.
Import-export code:
The first step is to obtain the import-export code (IEC). Additional permission is required for products that are restricted, canalised, or prohibited. An importer must apply for an import license, which can be general or specific.
Import license and quota:
Import licenses are renewable and are required for import clearance. It can be applied with the controller of imports in the form of an application form. It should be accompanied by the receipt of the import license fee, CA certificate on the import value, and income tax verification certificate. The import quota certificate is also obtained, which indicates the maximum quantity that the importer can import.
File Bill of Entry:
A Bill of Entry must be filed by the importer, which captures the exact value and quantity of the goods imported. The additional documentation depends on whether the goods have been cleared through the Electronic Data Interchange system or not.
Examination and duty:
The customs officials examine the goods imported, issue the pass-out order and determine the import duty rate.
What are import financials?
The advantage of import can be fully enjoyed only when you have arranged the finances necessary to complete the import deal.
Import advances:
The meaning of import advances is the prepayment demanded by the seller. The seller may agree to send the goods to the importer only upon the payment of an advance, either as a part or full consideration of the import value.
Import Letter of Credit (L/C):
The importer’s bank issues a written commitment to the seller or seller’s bank. It guarantees payment of a certain sum in a specific currency subject to the fulfilment of conditions mentioned in the L/C.
Import collection and payment:
In cases where the exporter’s bank sends the documents to the importer’s bank, the latter intimates the importer about the same. The importer’s bank then pays the seller or accepts the bill of exchange. The importer may receive such documents directly and instruct the bank to make the payment directly.
Start importing with ease
HDFC Bank handles all the financial aspects of import trade for its import account holders. As an importer, you get the best exchange rates, subject matter expertise and unmatched banking experience from HDFC Bank.
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