CHAPTER – I

BUSINESS, TRADE AND COMMERCE

Introduction:

All Human beings where ever they may be require different type of goods and
services to satisfy their needs. Business is a major economic activity in all
modern societies concerned with production and sale of goods and services
required by the people. It is aimed at earning money by satisfying human
demands.

Human wants are unlimited. In every society people undertake various activities
to satisfy their needs. Human activities can be classified into two:-

(1) Economic Activities (2) Non Economic Activities

1. Economic Activities-Economic activities are those activities which are

undertaken by people to generate something in return in terms of money or
money worth to earn money. Eg : A manager works in an office and gets salary
after the end of the month.

2. Non Economic Activities- Non economic activities are those activities which
are undertaken by people to get psychological satisfaction or as a love ,
affection patriotism etc hobby. Eg : House wife cooks food for her family,
Gardening as a hobby, Playing football etc

Differences between Economic Activities and Non-economic Activities

Economic Activities Non-economic Activities

Undertaken by people to earn money
Its benefit can be measured in terms of Its benefit can’t be measured in terms
money
Money is the reward
Examples:
A worker works in a factory
A doctor runs his clinic
A teacher works in a School
A manager works in an office
A business man runs a shop
Undertaken by people to get
Psychological or mental satisfaction
of money
Mental satisfaction is the reward
Examples:
House wife cooks food for her
family.
Boy helps an old man to cross the
road.
Gardening as a hobby.
A mother looks after her children
Playing football.
 A patriot sacrifices his life for his
motherland.
Types: Types:
Profession, Religious and Cultural activities
Employment Leisure Time Activities
Business Social Welfare Activities

Types:

a) Profession

Profession is an occupation, in which application of special knowledge and skill

of a person is necessary in their work to earn income. It involves rendering of
personal services of a special and expert nature by following code of conduct of
the professional bodies laid by them. Eg Doctors are engaged in the medical
profession governed by Medical council of India, Chartered Accountants are
engaged in the accounting Profession governed by Institute of Chartered
Accountants of India etc.

b) Employment

Employment refers to an occupation in which people work for others regularly

and get salary or wage in return as per the contract made by employer and
employee. For example: Persons who work in bank and receive salaries,
Persons who are working as labour in factory and get wages etc

c) Business

Literal meaning of Business is “BUSY”.(Purchase or Sale, Production,

Distribution etc)

Requires capital as per the size and nature of the Business operations.

Business is an economic activity which involves production or purchase of good

for sale, or exchange of goods or providing services, at profit For example:
farming, cultivation by farmer, publishing a book by a publisher etc.

Business run by a shopkeeper, a commercial bank, advertising company etc.

BUSINESS = COMMERCE +INDUSTRY

COMMERCE = TRADE + AUXILIARIES TO TRADE

FEATURES:

a) An Economic activity:-- Human activity to generate something in

return either in terms of money or in kind has money value to earn money for
livelihood by satisfying human needs.

b) Production and Procurement of goods and services: Every business

enterprise must either manufacture the goods or sell finished goods or provide
services for the consumption of the people. Goods may be consumer goods or
Capital goods. Services means facility offered to consumers like banking,
insurance etc.

c) Sale or exchange of goods and services: Business involves transfer or

exchange (purchase or sale of goods and service for some value/ consideration
in terms of money but does not include self consumption.( There should be sale
or exchange of goods and service between the seller & the buyer)

d) Dealing in goods and services on a regular basis: It should be a

regular activity. One time sale or exchange will not be considered as business. If
a person sells his car is not a business activity.

e) Profit earning: Business always aims at earning profit for survival

(generate income or revenue to cover the cost incurred )and growth ( increase in
sales volume or increase in branches etc) of the business in future.

f) Uncertainty of Return (Earning): There is always a possibility of

less amount of profit or even loss in business.

g) Element of Risk: There is always a possibility of Uncertainty of

earnings. Risk cannot be eliminated from business All business activities carry
some elements of risk because future is uncertain. Risk may be in the form of
natural calamities, changes in consumer tastes, competition, fire, change in
government policy, strikes etc.
 Commerce

COMMERCE = TRADE + AUXILIARIES TO TRADE

Commerce = Trade + Aids to trade

Commerce includes trade and auxiliaries to trade (aids to trade). Buying

and selling of goods is termed as trade. But there are a lot of activities that
facilitates the process of trade. These are called auxiliaries to trade or aids to
trade. Aids to trade include services like banking, insurance, communication,
advertisement and warehousing.

Industry looks after the production aspect of business whereas commerce

looks after the distribution aspect of the business. Whatever is produced, it must
be consumed. To facilitate this consumption there must be a proper distribution
channel. Commerce facilitates the transfer of goods from producers to
consumers. Commerce is the connecting link between producers and
consumers. Commerce includes all those activity which are necessary for
maintaining a free flow of goods from producers to consumers.

Role of commerce

Definition

‘Commerce means the sum total of those processes which are engaged in the
removal of the Hindrance of person, place and time in the exchange of
commodities’.In the process of trade there exist various hindrances like
hindrances of place, hindrances of time, Hindrances of knowledge, hindrances
of finance, hindrances of risk etc. Aids to trade or auxiliaries to trade remove
these hindrances. Hindrance of place can be removed with the help of
transportation, hindrance of time can be removed with the help of warehousing,
hindrance of knowledge can be removed with the help of advertising, hindrance
of finance can be removed with the help of banking and hindrance of risk can be
removed with the help of insurance and proper packaging.
1.Removing the hindrance of person by making goods available to consumers
from the producers. through trade

.2.Transportation removes hindrance of place by moving goods from the place

of production to the markets for sale.

3. Storage and warehousing activities remove the hindrance of time by

facilitating holding of stock of goods to be sold as and when required.

4. Insurance removes hindrance of risk of loss or damage of goods due to theft.

fire. accidents etc.

5. Banking removes hindrance of finance - by providing funds to a businessman

for acquiring assets. purchasing raw materials and meeting other expenses.

6. Advertising removes hindrance of information by informing consumers about

the goods and services available in the market

Meaning - Commerce refers to all those activities which are concerned with the
transfer of goods and services from the producers to the consumers. It embraces
all those activities which are necessary for maintaining a free flow of goods and
services

Trade

Trade is the central activity (nucleus) of commerce. It refers to purchase and

sale of goods in terms of money . It helps the movement of goods from the
producer to the ultimate consumers. They purchase goods from the producer in
bulk quantities and sell them to consumers according to their requirements. It is
the connecting link between producer and consumer. In the absence of trade, it
would not be possible to undertake production activities on a large scale.

Trade may be internal trade or external trade.

I. Internal trade

Internal trade means purchase and sale of goods with in the country. Internal
trade may be whole sale trade or retail trade on the basis of quantity purchased .

(a) Whole sale trade

Wholesaler is the connecting link between producer and retailer. He purchases

huge quantity of goods from producer, stores it in big godowns and sells in

small quantities to retailers.

(b) Retail trade

Retail trade is the Connecting link between wholesaler and ultimate consumer.

Retailer purchases goods from wholesaler and sells them to ultimate consumer.

A retailer is the last link in the chain of distribution.

II.External trade

External trade or foreign trade means buying and selling of goods and services

between two countries. External trade may be import trade, export trade or

Entrepot trade.

Import trade – 1f goods are purchased from another country, it is called import
trade.

Export trade – If goods are sold to another country, it is called export trade.

Entrepot trade- When goods are imported from foreign countries with the
object of re exporting them to some other countries, it is called entrepot trade.

Eg. Indian firms importing goods from Germany and Japan and exporting it to

Nepal is entrepot trade.

Auxiliaries to trade (Aids to Trade)

The term commerce includes trade and aids to trade. These are services which
help in removing various hindrances which arise in the process of buying and
selling of goods. Transportation, banking, insurance, warehousing,
communication and advertising are regarded as aids to trade.

Aids to trade are briefly discussed below

1. Transportation

Production of goods generally takes place in particular locations Creates place

utility to the product. But these goods are required for consumption in different
parts of the country so The obstacle of place is removed by the transport . For
instance tea is mainly produced in Assam but it is consumed all over India. The
hindrance of place is removed with the help of various transportation facilities
like road transport, rail transport, air transport etc.

2. Banking and Finance

Business activities can’t be undertaken unless funds are available for acquiring

assets and meeting day to day expenses. (Business needs funds for acquiring
assets, purchasing raw materials and meeting other expenses so Necessary funds
can be obtained from a bank)

Banks help business firms to overcome the problem of finance by giving

necessary funds. Banks also undertake collection of cheque, remittance of funds
to different places,discounting bills of exchange etc.Thus hindrance of finance
can be removed with the help of banking.

3. Insurance
Business involves various types of risks. Factory building, machinery, goods in
stock or transit are subject to the risk of loss or damages. Risk may arise due to
fire natural calamities, accidents etc. Employees are to be protected from risks
of accidents. Insurance provides protection in all such Cases by the payment of
compensation thus Hindrance of risk can be minimized with the help of
insurance.

4. Warehousing

There is always a time gap between the production and consumption of goods.
They are to be kept in good condition and make them available as and when
required. (This problem can be solved by storing the goods in warehouses from
the time of production till the time they are demanded by customers).
Warehousing helps business firms to overcome the problem of storage and
facilitates the availability of goods when needed creates time utility to the
product. Warehousing stabilities prices by equalizing the supply of goods to the
market. Thus hindrance of time can be removed with the help of warehousing.

5. Advertising

Advertisement plays on important role in the process marketing. Through

advertisement consumers get knowledge /information about a particular product
and its use. It is one of the most important devices designed to capture the
attention of prospective customers and to create interest in the products which
would ultimately turn into sales. . It is through advertising that the customers
come to know about the new products and their utility.Thus advertisement
removes hindrance of knowledge in the process of trade. Various means of
advertisement are news paper, TV, magazine, radio, internet etc.

6. Communication

Communication means exchange of ideas, facts, opinions, emotions,

information etc. between two or more persons( exchange of information
between producers consumers and traders) . The successful operation of the
business requires that there must be proper communication between buyer and
seller. Communication between them is required for placing order, making
complaints, making payments, deciding the terms of transactions etc. The
various means of communication are telephone, email, mobile phone, fax etc.
.

Industry

Industry refers to that part of business activities which is concerned with the
production of goods and materials through mechanical appliances and technical
skills and also service industry like insurance industry etc..

Industries can be divided into three broad categories namely:

1. Primary industries

2. Secondary Industries

3. Tertiary Industries

1. Primary Industries

It includes all those business activities, which are concerned with extraction of
natural resources, reproduction and development of living organisms, plants etc.
. The primary industry includes those activities through which the natural
resources are used to provide raw material for other industries. Primary
industries can be classified into two namely extractive industries and genetic
industries.

(a) Extractive Industries: Extractive industries are those industries which

extract something from natural sources like earth, water, air etc. It extract
timber from forest, fish from sea, coal and iron are from soil etc. Primary
industries supply basic raw materials to manufacturing industries and
manufacturing industries convert these raw materials into finished goods. Eg.
Mining, Hunting, Fishing from natural sources, Fruit gathering, Agriculture etc.

(b) Genetic Industries: Genetic Industries are those industries which are
undertakes activities like reproduction or multiplication of animals and plants
with an objective of earning profit. Eg : Agriculture nursery, poultry farming,
cattle breeding, Pisciculture (fish farming/hatchery), dairy Farming etc
2. Secondary Industries

Secondary Industries are manufacturing products or constructing building, roads

etc. by using raw materials provided by primary industries. e.g. producing
cotton is a primary industry and manufacturing cloth out of cotton is a
secondary industry. It is of two types.

Secondary industries can be divided into two:-

(a) Manufacturing Industry (b) Construction Industry

(a) Manufacturing Industry: Manufacturing Industries are engaged in the

process of converting raw materials into finished good and create form utilities.
They convert cotton into textile, iron ore into steel, timber into furniture and so
on.

On the basis of methods of operation used for production, we can classify

manufacturing industries into four categories.

i) Analytical Industries ii) Synthetical Industries iii) Processing Industries iv)

Assembling Industries

(i) Analytical industries – Analytical industry is engaged in the process of

analysing and separating various components from the same material. Eg .Oil
refinery – they separate diesel, petrol , gasoline, kerosene etc from crude oil

(ii) Synthetical Industry – Business engaged in this sector combines various

ingredients to produce a new product. Eg. Cement industry, fertilizer industry,
Paints industry etc.

(iii) Processing Industry – Process of these industries involves successive

stages for manufacturing finished products .Eg. Sugar industry, paper Industry.

(iv) Assembling Industry-Assembling industry is engaged in the process of

assembling different components to make a new product Eg. Computer
industry, Car industry, television industry etc.

(b) Construction Industry

These industries are involved in the construction of buildings, dams, bridges,

roads, canals etc. The raw materials required for these industries are supplied by
the manufacturing industries and extractive industries. Their outputs are always
immovable.
3) Tertiary Industries/Service Industry -

Tertiary industries are providing support service to primary and secondary

industries. Tertiary Industries consists of banking, Insurance, advertising,
communication etc. For example, if a transporting company helps to move iron
ore from mining place to manufacturing plant, it come under industry and on the
other hand if the same transporting company helps to move finished product
(here steel) to different parts of the country, it is not an industry and it is a part
of commerce.

Make in India

‘Make in India’ is an initiative launched by the Government of India on 25

September 2014,to encourage national as well as international companies to
manufacture their products in India. The major objective behind this project is
to create employment opportunities and enhance skill development in 25 sectors
of the economy.