Chapter 1

Business, Trade and Commerce

History of Trade and Commerce

 The economic and commercial evolution of any land depends upon its
physical environment.
 This stands true for the Indian subcontinent as a whole which was
Himalayas in the North boarded by water in the south.
 A network of roads merging into the silk route helped in establishing
commercial and political contacts with adjoin foreign kingdoms and
empires of Asia , in particular and in general .
 The maritime (Roads that passes/developed in water) routes linked the
east and the west by Sea and were used for the trade of spices and
known as ‘Spices Route’.
 Archaeological evidence has shown that trade and commerce was
mainstay of the economy of ancient India carried out by water and land.
 Commercial cities like Harappa and Mohenjo-Daro were founded in the
third millennium B.C.
 There were diverse types of coins and weighing practices which used to
vary from place to place with the help of money charges and by
resorting to certain commonly accepted weights and measures.

Indigenous Banking System

 As economic life progressed, metals began to supplement other
commodities as money because of its durability and divisibility.
 As money served as a medium of exchange, the introduction of metallic
money and its use accelerated economic activities.
 Documents such as ‘Hundi’ and ‘chitti’ were in use of carrying out
transaction in which money passed from hand to hand.
 Indigenous banking system played prominent role in lending money and
financing domestic and foreign trade with currency and letter of credit.
 Functions of Seths and Bankers
Accepts Deposits (metal coins)
It is not a formal banking system nor
governed by any statutory Body
 Credit and loans for domestic trade

Hundi
Hundi became very popular. Hundi involved a contract which –
(written document)
I. Warranty the payments of money. It indicates an
unconditional promise.
II. Could be transferred through valid negotiation.
Types of Hundi

Names of Broader Functions of Hundi

Hundi Classification
Dhani-Jog Dharshani Payable to any person no liability
over who received payments.
Sah-Jog Dharshani Payable to specific person,
(when someone ‘respectable’ Liability
presented) over who received payment(seth
Demand Bill and nagarseth)

Firman-Jog Dharshani Hundi made payable to others

Dekhan-Jog Dharshani Payable to the presenter or bearer.
Dhani-Jog Muddati Payable to any person – no liability
(Fixed term over who received payment but
period) payment over a fixed term. (30
days-160 days)
Firman-Jog Muddati Hundi made payable to order
following a fixed term (30days)
Jokhmi Muddati Drawn against dispatched goods. If
goods lost in transits, the drawer
or holder bears the cost and the
drawee carries no liability.
 Development of Indigenous banking system. This played a special
role –

1. People began to deposit precious metals with lending

institution acting as banker or seths.
2. These bankers and seths became in instruments for supplying
money for producing more goods.
3. Indigenious banks played a special role in lending money and
financial domestic trade.
Agriculture and domestic of animals also help to generate
surplus and savings for Investments:
1. Due to favourable climatic conditions people of India were able
to raise two or three crops in a year.
2. In addition to agriculture by resorting to weaving, dyeing
fabrics, making clay pots, manufacturing, transport (carts,
boats, etc.) they were able to generate surplus for investment.
Development of karkhanas or workshops:
Here skilled artisans worked and converted raw material into
finished goods. Family based apprenticeship system was
practised. So that their art and skills could be transferred to
next generation.

Apprenticeship – skills were passed from one generation to another

Rise in Intermediaries
They played a very important role in the promotion of trade.

1. Commission agents, brokers, distributers for wholesale and retail trade.

They brought a lot of silver bullion in Asia and large shares were in India.
2. Institution of Jagat Seth : They played an important role during the
Mughals period and days of east India Company.
3. India has a favourable Balance of trade.
 Exports > Imports

(Selling in other countries) (Buying from other countries)

TRANSPORT
 The northern roadways route is believed to have stretched
originally from Bengal to taxila (approx. 1890 kms)
 There were also trade routes in the south spreading east and
west.
 Trade routes were structurally wide and suitable for speed and
safety.

Modes

Land/ Roadways Water/

Waterways

 Malabar coast, on which Muzies is situated has a long history

of international maritime trade going back to the era of the
Roman Empire
 Pepper who particularly valued in the Roman Empire and was
known as Black Gold. (because Roman countries paid for
pepper in gold coins)
 It was in Search of an alternative route to India for species that
lead to the discovery of America by Columbus.
 Calicut coast was used by Chinese shis to acquire essential
items from Middle East as well as pepper, diamonds, pearls,
and cotton from India.
 On Coromandel Coast, Pulicat was major port. Textile was
majorly exported to south East Asia from here.
 Trading communities Strengthened
 Punjab and Multani merchants handled business in the
Northern Region.
 While the Bhats managed trade the trade in the states of
Gujarat and Rajasthan.
 In the Western India, there groups were called Mahajan, Chatts
were important traders from south.
 In Urban Centres, such as Ahmadabad the Mahajan community
collectively repented by their chief called Nagarseth.
Merchant Corporation
 The merchant community also derived power and prestige
from guilds, which were autonoums corporations, organised on
formal basis, framed their own rules of membership and
professional conduct which even kings were supposed to
accept and respect.
 Trade and Industry taxes were also a major source of revenue.
 Traders had to pay octoi duties that were levied on most of the
importuned articles at varying rates.
 They were paid either in cash or in kind.
 Custom duties varied according to communities.
 Tariff varied from province to province.
 Ferry tax was to be paid for passenger’s, good, cattle and carts.
 The guild chief dealt directly with the king or tax collected and
settled the market toll on behalf of its fellow merchants at a
fixed sum of money.
 The guild merchants also acted as custodians of religious
interest. They undertook the task of building temples and made
donations by levying a corporate tax on their members.
Leading Trade Centres in Ancient India:

1. Patliputra: Known as Patna today. It was not only commercial

town, but also a major centre for the export of stones.
2. Peshwar:
 It was an important exporting centre for wool and for the
import of horses.
 It has a huge share in commercial transactions between
India, china, and Rome in the first century A.D.
3. Taxila:
 It served as a major centre centre on the important land
route between India and Central Asia.
 It was also a city of financial and commercial banks.
 The city occupied an important place as a Buddhist centre
of learning.
 The famous Taxila University flourished here.
4. Indraprastha:
 It was the commercial junction on the royal road where
most routes leading to the East, West, South, and North
converged.
5. Mathura:
 It was an emporium of trade and peoples her subsisted
on commerce.
 Many routes from South India touched Mathura and
Broach.
6. Varanasi:
 It was well placed as it lay both on the Gangetic route and
on the highway that linked North with the East.
 It grew as a major centre of textile industry and become
famous for beautiful gold silk cloth and sandalwood
workmanship.
  It had links with taxila and bharuch.
7. Mithila:
 The trader of mithila crossed the seas by boats, through
the Bay of Bengal to the South China Sea and traded at
ports on the islands of Jaya, Sumantra and Borneo.
Mithila established trading colonies in South China,
especially in Yunnan.
8. Ujjain:
 Agate, Carnelian, Muslin and mallow cloth were exported
from Ujjain to different centre.
 It also had trade relations through the land route with
taxila and Peshawar.
9. Surat:
 It was the emporium of western trade during the Mughals
period.
 Textiles of Surat were famous for their gold borders (Zari).
 It is noteworthy that Surat hundi was honoured in far off
markets of Egypt and Iran.
10. Kanchi:
 Today known as Kanchipuram. It was here that the
Chinese used to come in foreign ships to purchase pearls,
glasses, and is stones and in return they sold gold and silk.
11. Madura:
 It was the capital of the Pandayas who controlled the
pearls fisheries of the Gulf of Manar.
 It attracted foreign merchants, particularly Romans, for
carrying out overseas trade.
12. Broach:
 T was the greatest seat of commercial Western India.
  It was situated on the banks of river Narmada and was
linked with all important marts by roadways.
13. Kaveripatta:
 Also known as Kaveri Patnam, It was scientific in its
construction as a city and providing loading, unloading
and strong facilities of merchandise.
 Foreign traders had their headquarters in this city. It was
convenient pace for trade with the Malaysia, Indonesia
China and the East.
 It was the centre of trade for perfumes, cosmetics scents
silk, wool, cotton, corals, pearls, gold and precious stones
and also for ships building.
14. Tamralipti:
 It was one of the greatest ports connected both by seas
and land with the west and the Far west.
 It was linked by roads to Banaras and Taxila.

Major Exports and Imports

Exports- Species, wheat, Sugar, Indigo, Opium, sesame oil,
cotton, parrot, live animals, animals products—hides,
pearls, sapphires, quarts, crystal, lapis, lazuli, granites,
turquoise and copper etc. [Learn any 10]
Imports- Horses, animal’s products, Chinese silk, flax, and
linen wine, gold, silver, tin, copper, lead, rubies, corals,
glass, amber etc. [learn any 10]

Position of Indian Subcontinent in the World Economy

 Between the 1st century and the 7th century CE, India is
estimated to have the largest economy of the ancient and
 medieval world, controlling about one-third and one-fourth of
the world’s wealth (timeline).
 The country was often referred to as ‘Swaranbhumi’ and
‘Swardweep’ in the writhing of many travellers.
 The pre-colonial period in Indian history was an age of
prosperity for Indian economy and mode the Europeans
embark great voyage of discovery.
 Despite the growing commercial sector, it is evident that 18th
century India was far behind Western Europe in technology,
innovation and ideas.
 With the increasing control of the east India Company causing
lack of freedom and no occurrence of agricultural and scientific
revolution.
 The British Empire began to take roots in India in the mid of
18th century.
 From exporter of processed good, India started to become the
exporter of raw material and Importer of manufactured goods.

IMPORTANT
QUESTION

6. Mark question

Write a short note on Position of Indian subcontinent in world

economy.
 SECTION II
Nature and Concept of Business

Business
Being Busy
Busy

Definition: Business may be defined as human activity

directly towards.

Producing or acquiring wealth through buying and selling

goods.
Business

Industry Commerce

(Converts raw material into useful products) (helps in distribution of goods to consumer)

Trade Auxillaries to Trade

Primary Secondary Tertiary

Buying and Helps in smooth

Extraction of Make use Providing
Selling of flow of trade
natural extracted Services
resources products goods and
services
 Primary Industry

Extractive Genetic

Involved in activities of
Involve extraction of something
rearing & breeding of living
from natural resources. E.g.
organisms. E.g. rearing of
Minerals from Earth, fishes from
cattles for milk, diary farms
rivers & seas etc.
etc.

Secondary Industry

Manufacturing Construction

Conversion of raw material or Concerned with

semi-finished goods into finished construction of building,
goods. dams, roads etc.

Analytical Synthetic Assembly Processing

Raw material Two or more Raw material is Various finished

broken into materials are processed through products are
different parts mixed to various stages then combined to produce
to produce manufactured finished goods are new finished
finished new product. manufactured. E.g. products. E.g.
products. E.g. Soap. Sugar Industry Television

E.g. Petrolium
 Tertiary Industry

Transport Banking Insurance Warehousing Advertising

Movement of Credit facilities to Coverage from Storage for goods. Information to

goods from industries & risks. consumers.
one place to trading firms.
another.

Characteristics of Business Activities

1. An economic Activity.
2. Production or Procurement of goods and services.
3. Sale or Exchange of goods &Services.
4. Dealing in goods and services on a regular basis.
5. Profit earning.
6. Uncertainty of return.
7. Element of risk.

IMP Q Q. Differentiate between Business, Profession and Employment.

(Learn any 6 differences from NCERT Book with basis).

 TRADE

Internal External

(Trade within domestic territory) (Trade outside domestic territory)

Wholesale Trade:
Buying and selling Retail Trade:
in large quantity. Buying and selling Export (Sale) Import Entrepot
in small quantity :(Purchase for
(Purchase)
sale)

Objectives of business
(i) Economic Objectives :

(a) Earning profits (b) Survival and Growth (c) Creation of new customers
(d) Innovation (e) Optimum utilisation of resources (f) Market standing

(ii) Social objectives:

(a) Quality of goods (b) Fair trade practices (c) Generation of employment
(d) Welfare of employees

(iii) Human or Individual Objectives:

(a) Providing good working conditions (b) Payment of competitive and

satisfactory wages and salaries (c) Providing special benefits such as housing
facility, medical facility, free education of children, etc.

Q. “Profit is not an objective but a requirement of business.”

Do you agree with this statement? Support your answer with reasons.
OR
Q. What is the role of profit in business?
ANS: Business is an economic activity. So, earning profit is the main
objective of every business.

These reasons are:

Survival: A business and businessman cannot survive for a long time without
earning adequate profit. Profit is a source of income for a businessman which
becomes his means of livelihood. Profit is needed to satisfy the needs of the
businessman and his family members.

Expansion and Growth: The business is expanded only when it is earning

sufficient amount of profit. When, profit is more a part of it can always be
reinvested for expansion or diversification of production of business. Retention
of profit is an internal source of fund. Retained profit is used for expansion and
growth of projects.

Symbols of Efficiency or an Index of performance: Profits indicate

whether a business is being managed efficiently or not. Profit acts an index of
performance of those who manage the business. Higher profits indicate the
efficiency of management and vice-versa. The success of business is judged by
its ability to earn profit.

Reward for Bearing the Risk: Profit is considered as a price or a reward to

bearing the risk. Businessman invests the money in business only with the
hope of earning profit. Profit and Risk are directly related to other. Higher the
risk, the more is profit & vice-versa. The desire to earn profit motivates the
businessman to bear the risk.

Helps to Gain Reputation or Goodwill: A profit earning company always

has a better reputation in the market as compared to companies which
running in loss. The rate of earning profit helps in creating goodwill of the
company in the market. The company with high rate of profit are able to raise
loans and obtain credit easily. Even the efficient employees prefer to work in
profit earning companies as they are able to give high salaries and wages.
 Meaning of Business Risk:

It refers to uncertainties or unexpected events, which are beyond

control. In other words, business risk means a chance of incurring
losses or loss profit than expected.

Nature of business risk

(i) Business risks arise due to uncertainties.

(ii) Risk is an essential part of every business.
(iii) Degree of risk depends mainly upon the nature and
size of business.
(iv) Profit is the reward for risk taking.

Causes of business risks: (i) Natural causes: E.g. Flood, earthquake,

lightning, heavy rains, famine, etc.

(ii) Human causes: E.g. dishonesty, carelessness, or negligence of

employees, stoppage of work due to power failure, strikes, etc.

(iii) Economic causes: E.g. uncertainties relating to demand for

goods, competition, price, collection of dues, etc and financial
problems, like rise in interest rate of borrowing, etc.

(iv)Other causes: E.g. unforeseen events, political disturbances,

mechanical failure, such as bursting of boiler, fluctuation in exchange
rates.

Methods of dealing with risks: (i) Avoiding high-risk transactions. (ii)

Insurance policies. (iii) Provisions. (iv) Risk sharing. (v) Preventive
measures.

Types of business risk: a. Speculative risk b. Pure risk

Speculative Risk involves both the possibility of gain, as well as loss.

Speculative risk arises due to change in market conditions, including
fluctuation in demand and supply, changes in price prices or changes
in fashion and tastes of customers. Favourable market conditions are
likely to result in gains whereas, unfavourable once may result in
losses.

Pure Risk involves only the possibility of loss or no loss. The chance
of fire, theft, strike are examples of pure risk. Their occurrence may
result in loss, whereas non-occurrence may explain absence of loss,
instead of gain.

KEY TERMS: (Optional to write in notebook)

Economic activities: Are those activities which are undertaken by people with
the object of earning income or livelihood or to satisfy material needs e.g., a
worker working in a factory, a taxi driver driving a taxi, etc.

Non-Economic activities: Are those activities which are undertaken to satisfy

social, psychological and emotional needs. The purpose of these activities is
not to earn money or to satisfy material needs. e.g., person engaged in
religious work, a mother looking after her children, etc.

Business: It is a human economic activity, concerned with the purchase or

production and sale of goods supply of services with a view to earn profits by
satisfying the needs of consumers.

Profession: It refers to an economic activity which requires some specialised

skill or knowledge is governed by certain code of conduct and is done with
service motive. e.g., doctors, lawyers, etc

Employment: Employment is an occupation where an individual agrees to

work for a person or an organisation in return of wages or salaries. e.g.,
managers, clerks, factory workers etc.

Industry: Includes all those activities that are concerned with the conversion of
raw material into useful products (production). Using mechanical appliances
and technical skills. For e.g. cement industry, textile industry, etc.
The term industry is also used to mean group of firms producing similar or
related goods.

Primary Industries: Includes all those activities which are concerned with the
extraction and production of natural resources, reproduction and development
of living organisms, plants etc.

Secondary Industries: Are concerned with using the materials which have
already been extracted at the primary stage to produce goods for final
consumption.

Construction Industries: These are involved in the construction of buildings,

dams, roads, tunnels, etc. wherein architectural and engineering skills are
required.

Tertiary Industries: Are concerned with providing support services to primary

and secondary industries as well as activities assisting trade e.g., transport,
communication, etc.

Commerce: It embraces all those activities which are necessary for

maintaining a free flow of goods and services from the point of production to
the point of ultimate consumption. Thus providing a necessary link between
producers and consumers. It includes both Trade and Auxiliaries to trade.

Trade: Involves the buying and selling or transfer or exchange of goods and
services.

Internal Trade: Means trade within the boundaries of a nation. It can be of two
types: wholesale and retail trade.

External Trade: Means trade across the boundaries of nation. It is of three

types: Import, export and entrepot trade.

Auxiliaries to trade: Includes all those activities which are meant for assisting
trade

Extractive Industry: It includes all those activities which extract or draw out
various products from natural resources some examples of these industries
are—hunting, farming etc.
Genetic Industry: These industries remain engaged in breeding plants and
animals for their use in further reproduction

Manufacturing Industry: These industries are engaged in producing goods

through processing of raw materials and thus creating form utilities.

Analytical Industry: These industries analyse and separate different elements

from the same material. e.g., oil refinery, etc.

Synthetical Industry: These industries combine various ingredients into a new

product as in case of cement industry. Processing Industry: Are those
industries which involve successive stages for manufacturing finished products
e.g., sugar industry, etc

Assembling Industry: These industries assemble different component parts to

make a new product. e.g.Television, car, etc.

Transporting and communication: The auxiliaries to trade which remove

hindrance of place.

Banking and Finance: Involves banking and financing services which remove
hindrance of finance for business.

Insurance: It is a device which gives protection against risk of uncertain events

or removes hindrance of risk.

Warehousing: It means storing of goods till the time they are demanded in the
market and warehousing removes hindrance of time

Advertising: It is the tool of promoting the goods and services to maximise

sales and to create demand. It removes hindrance of information

. Business risk: Business risk may be defined as possibility of loss or inadequate

profits due to some unforeseeable, unpredictable and unfavourable events

Speculative risk: It involves both the possibility of gain as well as possibility of

loss. It arises due to change in market conditions, fluctuation in price, etc. Pure
risk: It involves only the possibility of loss or no loss. Fire, theft, strikes are the
examples of pure risk.
Natural causes of risk: These are beyond the control of businessman. e.g.,
flood, earthquake, hailstorm, etc. Human causes: Caused due to undesired
human behaviour and attitude of human resources e.g., dishonesty,
carelessness of employees, management inefficiency, etc.

Economic causes: These are related to changes in the business environment

and have direct impact on the earnings of the business e.g., change in tax
policy, change in demand, customers tastes and preference, etc.

Market conditions: State of economic activities (Demand and supply) in the

market. Insurable risk: The risks which can be recovered are insurable risk. The
losses which can be made good, or losses for which company can get
compensation from insurance company are called insurable risk.

Non-insurable risk: The risk for which no protection is available is called non-
insurable risk. Generally, the economic risk and human risk are non-insurable
risk.