Business Studies Chapter 10 Notes NCERT Class 11th – Internal Trade

Business Studies Chapter 10 Notes NCERT Class 11th

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10.1 Introduction to Trade

• Definition: Trade refers to the buying and selling of goods and services with the objective of earning profit.
• Classification based on geographical location:
  • Internal Trade: Trade that takes place within the boundaries of a nation.
  • External Trade: Trade between two or more countries.

10.2 Internal Trade

• Definition: Buying and selling of goods and services within a nation’s boundaries.
• Key Characteristics:
  • No custom duty or import duty is levied.
  • Payment is generally in the legal tender of the country.
• Categories of Internal Trade:
  • Wholesale Trade
  • Retail Trade
• Objective: Aims at equitable distribution of goods within a nation speedily and at a reasonable cost.

10.3 Wholesale Trade

• Definition: Purchase and sale of goods and services in large quantities for the purpose of resale or intermediate use.
• Wholesalers: Traders dealing in wholesale trade.
• Role: Serve as an important link between manufacturers and retailers.
• Functions:
  • Take title of goods and bear business risks.
  • Purchase in bulk and sell in small lots.
  • Undertake grading, packing, storage, transportation, and promotion.
  • Collect market information and orders from retailers.
  • Relieve retailers of maintaining large stock and extend credit facilities.
• Services of Wholesalers: Wholesalers provide time and place utility by making products available when and where needed.

10.3.1 Services to Manufacturers

• Facilitating large-scale production: Wholesalers pool small orders from retailers, enabling manufacturers to produce in bulk and achieve economies of scale.
• Bearing risk: They bear risks like price falls, theft, spoilage, and fire, relieving manufacturers.
• Financial assistance: Generally make cash payments to manufacturers for purchases and sometimes provide advances for bulk orders.
• Expert advice: Provide manufacturers with information on customer tastes, market conditions, and competitive activities.
• Help in marketing function: Manage distribution to numerous retailers, allowing manufacturers to focus on production.
• Facilitate production continuity: Purchase and store goods as they are produced, ensuring continuous production throughout the year.
• Storage: Take delivery of goods and store them, reducing the storage burden on manufacturers.

10.3.2 Services to Retailers

• Availability of goods: Make products from various manufacturers readily available to retailers, reducing the need for large inventory.
• Marketing support: Undertake advertising and sales promotional activities, helping retailers increase demand.
• Grant of credit: Extend credit facilities to regular customers, helping retailers manage working capital.
• Specialised knowledge: Share market knowledge, new product information, and advice on store decor and shelf space with retailers.
• Risk sharing: By selling in smaller quantities, wholesalers help retailers avoid risks associated with large stock, such as storage, obsolescence, and price fluctuations.

10.4 Retail Trade

• Definition: A business enterprise engaged in the direct sale of goods and services to ultimate consumers.
• Retailer: Buys goods in large quantities from wholesalers and sells them in small quantities to consumers.
• Final Stage of Distribution: Represents the point where goods are transferred from manufacturers or wholesalers to final consumers.
• Functions of a Retailer: Purchases varied products, arranges storage, sells in small quantities, bears risks, grades products, collects market information, extends credit, and promotes sales.

10.4.1 Services to Manufacturers and Wholesalers

• Help in distribution of goods: Make products available to scattered final consumers, providing place utility.
• Personal selling: Relieve producers of personal selling efforts, aiding in sales actualisation.
• Enabling large-scale operations: Free manufacturers and wholesalers from individual sales, allowing them to focus on larger scale operations.
• Collecting market information: Provide direct market insights on customer tastes, preferences, and attitudes, useful for marketing decisions.
• Help in promotion: Participate in promotional activities (e.g., advertising, incentives) to boost product sales.

10.4.2 Services to Consumers

• Regular availability of products: Ensure continuous availability of various products from different manufacturers.
• New products information: Provide information on new products, features, and arrival through displays and personal selling.
• Convenience in buying: Sell in small quantities, are usually located near residential areas, and operate for long hours, offering convenience.
• Wide selection: Keep a variety of products from different manufacturers, enabling consumers to make diverse choices.
• After-sales services: Provide services like home delivery, spare parts, and customer support, influencing repeat purchases.
• Provide credit facilities: Offer credit to regular buyers, enhancing their consumption and standard of living.

Terms of Trade

• Cash on Delivery (COD): Payment for goods or services made at the time of delivery.
• Free on Board (FOB) or Free on Rail (FOR): Seller bears all expenses up to the point of delivery to a carrier.
• Cost, Insurance and Freight (CIF): Price includes cost of goods, insurance, and freight charges up to the destination port.
• Errors and Omissions Excepted (E&OE): Used in trade documents to account for mistakes and forgotten items.

10.5 Types of Retailing Trade

• Classification Basis: Can be classified by size, ownership, merchandise handled, or fixed place of business.
• Two main categories based on fixed place of business:
  • Itinerant Retailers
  • Fixed Shop Retailers

10.5.1 Itinerant Retailers

• Definition: Traders without a fixed place of business, who move from place to place.
• Characteristics:
  • Small traders with limited resources.
  • Deal in daily-use consumer products (e.g., toiletries, fruits, vegetables).
  • Focus on providing doorstep service to customers.
  • Keep limited inventory at home or other places.
• Common Types in India:
  • Peddlers and Hawkers: Carry products on bicycles, handcarts, or on their heads, selling non-standardised, low-value goods like toys, vegetables, fabrics.
  • Market Traders: Open shops at different places on fixed days, dealing in specific merchandise (e.g., fabrics, toys) or general goods, catering to lower-income groups.
  • Street Traders (Pavement Vendors): Found at high-traffic areas (e.g., railway stations), selling common consumer items like stationery, eatables, ready-made garments.
  • Cheap Jacks: Petty retailers with temporary independent shops who change localities based on potential, dealing in consumer items and services.

10.5.2 Fixed Shop Retailers

• Definition: Retail shops with permanent establishments.
• Characteristics:
  • Generally have greater resources and operate on a larger scale than itinerant traders.
  • Deal in consumer durables and non-durables.
  • Offer greater credibility and services like home delivery, guarantees, repairs, and credit facilities.
• Types based on size of operations:
  1. Fixed Shop Small Retailers
  2. Fixed Shop Large Retailers

Fixed Shop Small Retailers

• General Stores: Common in local markets and residential areas, stocking a variety of daily-need products. Open long hours and often provide credit to regular customers.
• Speciality Shops: Becoming popular in urban areas, these stores specialize in a specific line of products (e.g., children’s garments, men’s wear, electronics). Located in central places, they offer wide choice within their specialization.
• Street Stall Holders: Similar to street traders but with fixed, limited space, dealing in cheap variety goods like hosiery, toys, cigarettes.
• Second-hand Goods Shop: Deal in used goods (books, clothes, automobiles, furniture) sold at lower prices, catering to persons with modest means. Some may also stock antique items.

Fixed Shop Large Stores

• 1. Departmental Stores:
  • Definition: Large establishments offering a wide variety of products classified into well-defined departments, aiming to satisfy nearly every customer’s need under one roof.
  • Features:
    • May provide extensive facilities like restaurants, travel bureaus, rest rooms.
    • Generally located in central city areas.
    • Often structured as joint-stock companies managed by a board of directors.
    • Combine retailing and warehousing functions, purchasing directly from manufacturers.
    • Centralized purchasing with decentralized sales.
  • Advantages:
    • Attract large numbers of customers due to central location.
    • Convenience in buying a wide variety of goods under one roof.
    • Offer attractive services like home delivery, telephone orders, credit facilities.
    • Benefit from economies of large-scale operations, especially in purchasing.
    • Can spend considerably on advertising and promotions, boosting sales.
  • Limitations:
    • Lack of personal attention due to large-scale operations.
    • High operating costs leading to higher prices, less attractive to lower-income groups.
    • High possibility of losses due to high costs and large inventory (e.g., fashion changes requiring clearance sales).
    • Inconvenient location for quick purchases as they are centrally located.
• 2. Chain Stores or Multiple Shops:
  • Definition: Networks of retail shops owned and operated by manufacturers or intermediaries, with similar appearance and merchandising strategies.
  • Features:
    • Located in populous localities to serve customers near their residence or workplace.
    • Centralized manufacturing/procurement at a head office, leading to cost savings.
    • Each shop managed by a Branch Manager who reports daily to the head office.
    • All branches controlled by the head office, which formulates policies.
    • Fixed prices and cash sales; cash deposited daily into local bank accounts for the head office.
    • Head office appoints inspectors for supervision of quality and adherence to policies.
  • Advantages:
    • Economies of scale due to central procurement.
    • Elimination of unnecessary middlemen by selling directly to consumers.
    • No bad debts as sales are cash-based.
    • Flexibility in transferring goods between shops reduces dead stock.
    • Diffusion of risk: losses in one shop can be offset by profits in others.
    • Lower overall operating costs due to centralized functions and increased sales.
    • Flexibility to close or shift unprofitable shops without significantly affecting overall profitability.
  • Limitations:
    • Limited selection of goods, especially if owned by manufacturers (e.g., selling only their own products).
    • Lack of initiative among personnel due to strict adherence to head office instructions.
• Mail Order Houses (Mail Order Business):
  • Definition: Retail outlets that conduct business through mail, without direct personal contact between buyers and sellers.
  • Process: Orders received via post, advertisements, or catalogues. Goods sent by post, rail, or vending machines upon full payment.
  • Suitability of Products: Best for goods that are graded, standardized, easily transportable, have ready demand, are available in large quantities, and can be described through pictures. Not suitable for perishable or bulky goods.
  • Advantages:
    • Limited capital requirement as no heavy expenditure on buildings.
    • Elimination of middlemen, leading to savings for both buyers and sellers.
    • Absence of bad debts due to cash-only sales.
    • Wide reach to all places with postal services.
    • Convenience for customers as goods are delivered at their doorstep.
  • Limitations:
    • Lack of personal contact, leading to potential misunderstandings and mistrust.
    • High promotion costs due to heavy reliance on advertisements.
    • No inspection of goods before purchase by buyers.
    • Delayed delivery as goods are sent by post.
    • Not suitable for all types of products.
    • Requires a widespread literate population for success.
• Consumer Cooperative Stores:
  • Definition: Stores owned, managed, and controlled by consumers, aiming to reduce the number of middlemen.
  • Objective: To provide consumer goods of good quality at reasonable prices.
  • Management: Managed by an elected managing committee.
  • Funding: Capital is raised through shares from members.
  • Registration: Must be registered under the Cooperative Societies Act.
  • Advantages:
    • Ease of formation: Any ten people can form a voluntary association.
    • Limited liability of members.
    • Democratic management: Each member has one vote.
    • Lower prices due to elimination of middlemen.
    • Cash sales reduce working capital requirements.
    • Convenient locations.
  • Limitations:
    • Lack of initiative among honorary managers.
    • Shortage of funds due to limited membership.
    • Lack of patronage from members.
    • Lack of business training among managers.
• Super Markets:
  • Definition: Large retailing units selling a wide variety of consumer goods based on low prices, wide variety, self-service, and strong merchandising appeal.
  • Products: Generally food products and other low-priced, branded, and widely used consumer goods (e.g., groceries, utensils, electronic appliances).
  • Location: Usually in main shopping centers.
  • Features: Goods kept on racks with clear price and quality tags.
  • Advantages:
    • Central location attracts many customers.
    • Economies of scale due to large-scale operations.
    • Wide variety of products under one roof.
    • No bad debts due to cash sales.
    • Benefits of impulse buying due to self-service and product display.
  • Limitations:
    • No credit facilities, restricting purchasing power.
    • No personal attention to customers due to self-service.
    • Risk of mishandling goods by customers.
    • High overhead expenses, which can negate low-price appeal.
    • Huge capital requirement and need for high turnover, limiting viability in small towns.
• Vending Machines:
  • Definition: Coin-operated machines useful for selling various products like hot beverages, tickets, milk, soft drinks, chocolates, and newspapers.
  • Advantages: Provide convenience and are suitable for pre-packed low-priced products.
  • Limitations: High initial installation and maintenance costs; not suitable for all products.

10.6 Role of Chambers of Commerce and Industry Associations in Promotion of Internal Trade

• Purpose: Associations like ASSOCHAM, CII, and FICCI are formed to promote and protect common business interests.
• Catalytic Role: Play a crucial role in strengthening internal trade.
• Interactions with Government: Interact at various levels to:
  • Reduce hindrances to trade.
  • Increase interstate movement of goods.
  • Introduce transparency.
  • Remove multiple layers of inspection and bureaucratic hurdles.
  • Erect sound infrastructure.
  • Simplify and harmonise tax structures.
• Intervention Areas:
  • Interstate movement of goods: Facilitate vehicle registration, surface transport policies, and highway construction.
  • Octroi and other local levies: Work to ensure these taxes do not hinder smooth transportation and local trade.
  • Marketing of agro products: Associations of agriculturists help streamline local subsidies and marketing policies.
  • Weights and Measures and prevention of duplication brands: Interact with the government to formulate and enforce laws protecting consumers and traders.
  • Excise duty: Interact to streamline excise duties, which impact pricing.
  • Promoting sound infrastructure: Discuss investments in infrastructure like roads, ports, electricity, and railways with government agencies.
  • Labour legislation: Constantly interact with the government on issues related to labour laws and retrenchment.

Goods and Services Tax (GST)

• Key Features:
  • Revolutionizing tax reform in India.
  • Destination-based single tax on supply of goods and services.
  • Replaced multiple indirect taxes levied by Central and State governments.
  • Aims to unify the market.
  • Expected to improve ease of doing business, reduce tax burden, improve administration, mitigate evasion, and boost revenues.
  • Comprises Central GST (CGST) and State GST (SGST).
  • Charged at each stage of value addition with input tax credit mechanism to avoid cascading effect (tax on tax).
  • Makes luxury goods costlier and mass consumption items cheaper.
  • Has a mechanism of matching invoices to check tax frauds and evasion.
  • Anti-profiteering measures ensure benefits from cost reduction are passed to consumers.
• Benefits and Empowerment for Citizens:
  • Reduction in overall tax burden.
  • No hidden taxes.
  • Development of a harmonised national market.
  • Higher disposable income for education and essential needs.
  • Wider choice for customers.
  • Increased economic activity and employment opportunities.
• Key Features of GST:
  • Applies to the whole country.
  • Applicable on ‘supply’ of goods or services.
  • Based on destination-based consumption tax principle.
  • Import of goods and services subject to IGST and customs duties.
  • CGST, SGST, and IGST rates mutually agreed upon by Centre and States.
  • Four tax slabs: 5%, 12%, 18%, and 28%.
  • Exports and supplies to SEZ are zero-rated.
  • Various modes of tax payment available (Internet banking, debit/credit card, NEFT/RTGS).
• GST Council:
  • Chairperson: Finance Minister.
  • Vice Chairperson: Chosen from State Government Ministers.
  • Members: MoS (Finance) and all Ministers of Finance/Taxation of each State.
  • Quorum: 50% of total members.
  • Weightage: States have two-thirds, Centre has one-third.
  • Decision: Taken by 75% majority.
  • Role: Makes recommendations on all aspects of GST, including rules and rates.

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Business Studies Chapter 10 Notes NCERT Class 11th – Internal Trade