Importing raw material to India should not be difficult after going through this comprehensive guide. We have taken care to include all the major aspects of importing raw material in this guide.
The Government of India has launched an ambitious ‘Make in India’ campaign as part of its endeavor to boost manufacturing in India. No doubt, this initiative creates many employment opportunities for Indian youth. At the same time, it requires importing raw material to India on a large scale. You need to follow the right procedure to import raw material. This guide will help you in the process.
What is the need for importing raw material?
Every manufacturing firm requires raw material for production. In the normal course, the manufacturers scout the local markets for the supply of raw material. It can happen that the raw material the company is looking for might not be available in India. Therefore, the companies have no option but to import them. Some of the major types of raw material imported by India include crude petroleum, gold, silver, fertilizers, medicines, cattle feed, steel rods, and so on. Pricing and dependable supply are some other factors which favor import of raw material over local supply.
The procedure for importing raw material to India
Let us see the process of importing raw material to India.
- Get an Importer Exporter Code: The Director General of Foreign Trade issues a unique Importer Exporter Code (IEC) number to people desirous of importing and exporting goods and raw materials. The first step is to apply for the IEC number.
- Trade Enquiry: Every purchase starts with an enquiry. Since you know your requirements, it should not be a difficult job to ascertain the raw material that you want to import. The question is from where and from whom do you import. There will be other manufacturers in your niche. They can guide you from where they procure the raw material. The internet is also a great place to search. On identifying the right seller, the first step towards importing raw material is to make an enquiry and ask for the quotation.
- Procure the Import licence: In the normal course, imports and exports of all goods are free except for certain goods regulated by the EXIM Policy and the Foreign Trade (Development & Regulation) Act of 1992. These goods are classified into three categories, Restricted, Canalized, or Prohibited. This brings us to the question of procuring an import licence.
- What is import licence in India?
You should check up whether the raw materials you intend to export comes under the restricted category. Items coming under the restricted category require the importer to obtain the import licence. Canalized goods can be imported through canalized agencies alone. There is no question of importing items that fall under the prohibited category.
Process for Import
- Placing an order: Once you have determined to import the requisite raw materials to India, you should place an order with the exporting company in the foreign country. Occasionally, you might have to pay a nominal token advance. In order to do so, you should obtain the requisite foreign exchange. The RBI rules in this regard are quite liberal. That should not be a problem at all.
- Obtaining a Letter of Credit: If you know and trust the exporter, you can send the payment for the consignment in advance. Alternatively, if the exporter trusts you, he will send the consignment and accept the payment subsequently. There is a third alternative in the form of a letter of credit. You should approach your bank with the copy of the confirmed order and request for a Letter of Credit Facility. Depending on your credentials, banks offer such facilities to importers.
- Arranging the Finance: Your bank sends the copy of the Letter of Credit to the exporter’s bank asking them to forward it to the beneficiary. Depending on the terms and conditions laid down in the letter of credit, the exporter completes the shipment. In doing so, he dispatches the documents as listed in the Letter of Credit to your bank through his bankers. It is the job of your bank to scrutinize the documents. If they are in order as specified in the Letter of Credit, the bank advises you about the same. You have to make arrangement for clearing the documents as specified in the terms of the contract. In case it is a DP contract, you have to arrange for the finance and clear the documents from the bank. In a DA contract, the bank delivers the documents to you on your acceptance of the same.
- The arrival of the Goods: You have retired the documents as per the terms of the Letter of Credit. You can now proceed with the payment of customs duty in India and collect the shipment. The import duty in India depends on the nature of goods you import into India. Once you pay these import taxes in India, you will be able to release the shipment from the destination ports.
- Use the raw materials for the manufacture of your product.
You have just seen the process of importing raw material. India imports a lot of raw material from China. Hence, importers need to understand the method of importing raw material from China. The procedure of importing raw material from China is more or less the same. There are minor concessions. They are as follows.
- Persons importing goods from China through Gunji and Namgaya Shipki La routes are exempted from obtaining the IEC number provided the CIF value of the consignment does not exceed Rs 25,000.
- Similarly, for imports through the Nathu La pass, the applicable ceiling is Rs 100,000.
What are the documents required for importing raw material in India?
The following documents are necessary for importing raw material to India.
- IEC Registration
- Import Licence, if necessary
- Industrial Licence, if necessary
- Commercial Invoice
- Purchase order / Letter of Credit
- Bill of Lading / Airway Bill / Road Transport Receipt
- Insurance Certificate
- Bill of Entry
- Technical Write Up for specific goods
- Registration Cum Membership Certificate, if necessary
- Test Reports, if required
- DEEC/DEPB/ECGC documents for duty benefits
- Central Excise documents, if required
- GATT/DGFT declaration
Why import goods?
India has an abundant supply of raw materials. However, certain goods are not available in India. Prices of imported raw materials could be lower and supply could be more reliable. These factors coupled with high local demand for reasonably priced products leads to a thriving import business.
You have just seen the import procedure in India. Do you now think it is difficult importing raw material to India from anywhere in the world? The answer should be an emphatic NO.