I have a AWS EC2 Instance running with a PEM file kept at a safe place. Now I want to give sftp access to one of the user to a particular directory. For this they have given me the private key file of their system. Is it possible to somehow import that private key on AWS Instance?
In general, private keys should not be distrubuted. You need the users public key. You can then place that public key in the ~/.ssh/authorized_keys file for the user you want to allow access to. Note that you can use both sftp and scp to retrieve files from as server in a secure fashion. In my opintion, scp is easier to setup, but you may want sftp depending on your use case. If you want additional information on setting up SFTP, check How to setup an SFTP server on CentOS.