Import trade is the process of importing goods and services from another country. A country import good in following situations
They can’t manufacture/ produce goods.
They have a deficit of raw material to produce.
The technology/process is inefficient and costly.
Understanding Import Trade
Before delving deep into the concept of Import trade, you need to get familiar with and understand several other terms. Have a look.
Trade – Trading is a process which involves the exchange of goods or services from one entity to another in exchange for something worth the cost (usually money).
International trade – In the international trading process, goods, services, or capitals are exchanged between international borders or territories depending upon the demand and supply. Such trades contribute to a considerable share of GDP (gross domestic product).
Import – It is a process of receiving goods and services from another country.
Export – It is a process of delivering goods and services to another country.
Balance of trade (BOT) – It is the difference in monetary value between export and import trade figures of a country.
Task for you: What are some of the goods that India exports to other countries? Also, name some of India’s most commonly imported goods?
Trade Examples –
Countries have to depend on trades for certain goods which their country has a deficit of. For example, India gets its crude oil from Middle-East countries like Iraq, Saudi Arabia. Similarly, almost half of the electronic goods imported to India are from China.
However, if a country’s import value exceeds the export value, then it is said to have a negative balance of trade (BOT) which shows a deficit of trading.
Questions to Learn
Q 1: What are Objectives of Import Trade?
Answer:
A country opts for import trading to achieve following objectives –
To meet their demand for products and services.
Growth in industrialisation.
Improved living standard.
Overcome difficult situations like natural calamities.
Procedure of Import Trade
A country has to follow the procedure mentioned below for import trade.
1. Trade Enquiry
In this step, a country that needs imported goods sends a query to exporter countries requesting them to disclose information regarding price, quality, terms and conditions, etc. for goods. In return, exporters send the details in the form of quotations.
2. Getting an Import License
It is vital to procure an import license first to proceed.
3. Obtain Foreign Exchange
The exporter country asks to pay for import goods in foreign exchange which is governed by RBI.
4. Placing Order
After the above steps, the importer country needs to place an order mentioning the quantity of purchase.
5. Arranging a Letter of Credit
The importer country needs to send the letter of credit from their concerned bank to the overseas supplier.
6. Arranging Finance
The importer needs to arrange funds in foreign currency before the shipment arrives.
7. Acquiring Shipping Documents
Once the exporter ships a consignment, they send a shipping document to the importer mentioning all the necessary details. These usually include –
Invoice number
Date of arrival
Name of the ship and date
Export destination
Classification of commodities and quantity, etc.
8. Goods Arrival & Release of Goods
The goods are dispatched by the exporter after seeking clearance from customs before they cross Indian borders. Here, the importer needs to arrange the unloading charges, import duty, custom duty etc. for the clearance.
This gives you an overview of the import trading and its procedure which a country has to deal with. Furthermore, you can learn in detail the trade in meaning by following the study materials available at our website. Don’t forget to install Vedantu’s app!
FAQs on Basics of Import Trade: A Quick Overview
1. What is import trade and why is it important for a country like India?
Import trade involves the purchasing of goods and services from other countries for domestic consumption or production. It is crucial for India because it allows the country to acquire essential raw materials (like crude oil), advanced technology, and capital goods that are not available or are costly to produce domestically. This helps in meeting consumer demand, improving the standard of living, and accelerating industrial growth.
2. What is the role of the Directorate General of Foreign Trade (DGFT) in India's import trade?
The Directorate General of Foreign Trade (DGFT), under the Ministry of Commerce and Industry, is the primary body that regulates and promotes foreign trade in India. Its main role in import trade is to formulate and implement the Foreign Trade Policy. This includes issuing licences, setting guidelines for permissible imports, and managing the Importer-Exporter Code (IEC) system.
3. What is an Importer-Exporter Code (IEC) and is it mandatory for all imports?
An Importer-Exporter Code (IEC) is a unique 10-digit identification number issued by the DGFT. It is mandatory for any person or company looking to start an import or export business in India. As per the guidelines for 2025-26, no import can be made without an IEC, making it the first and most crucial requirement for engaging in international trade.
4. What is the fundamental difference between import trade and domestic trade?
The fundamental difference lies in the geographical and political boundaries crossed.
- Import Trade: Involves the exchange of goods and services between two or more different countries, requiring adherence to international laws, customs duties, and multiple currencies.
- Domestic Trade: Occurs within the geographical boundaries of a single country, governed by a single set of laws, a single currency, and simpler logistics.
5. What are the main objectives of engaging in import trade?
The main objectives of import trade are:
- To fill resource gaps: Importing goods and raw materials that are scarce or unavailable in the home country.
- To access superior technology: Importing machinery and equipment to improve domestic production efficiency.
- To offer consumer choice: Providing a wider variety of products to consumers, often at competitive prices.
- To manage emergencies: Importing essential goods like food and medicine during national crises or shortages.
6. How does a Letter of Credit (L/C) secure a transaction in import trade?
A Letter of Credit (L/C) is a guarantee from an importer's bank that the exporter will receive payment once they meet the conditions specified in the L/C. It secures the transaction by mitigating risk for both parties. The exporter is assured of payment, which encourages them to ship the goods. The importer is assured that payment will only be made after the exporter provides proof of shipment (like the Bill of Lading), ensuring the goods have been dispatched as agreed.
7. What are the key steps involved in the import trade procedure for a business in India?
The import procedure generally involves these key stages:
- Trade Enquiry: The importer requests information on price and terms from various exporters.
- Obtaining an IEC: Securing the mandatory Importer-Exporter Code from the DGFT.
- Procurement of Licence: Obtaining an import licence if the goods fall under a restricted category.
- Placing the Indent/Order: Sending a formal order to the selected exporter.
- Arranging Finance: Often done by opening a Letter of Credit (L/C) with a bank.
- Receipt of Shipment Advice: The exporter informs the importer about the dispatch of goods.
- Customs Clearance and Release: Fulfilling all customs formalities, paying duties, and taking delivery of the goods from the port.
8. What is the difference between a Bill of Lading and a Bill of Entry in imports?
While both are crucial documents, they serve different purposes at different stages. A Bill of Lading is issued by the shipping company to the exporter as a receipt for the goods and a contract for their transportation. It acts as a document of title to the goods. In contrast, a Bill of Entry is a legal document filed by the importer with the customs authorities upon the arrival of goods. It contains details of the goods and is required for their assessment and customs clearance.
