Ch – (1) Business, Trade and Commerce

History of Trade and Commerce in India: A network of roads merging into the Silk Route (ancient
network of silk routes involving heavy trading of silk) helped in establishing commercial and political
contacts with adjoining foreign kingdoms and empires of Asia. The maritime routes (ie transportation of
goods through sea, using ships) linked the east and the west by sea and were used for the trade of spices and
known as ‘Spice Route’.

Indigenous Banking System – (which develops on its own)

 Introduction of metallic money (ie coins of various metals like gold, silver, nickel, copper, etc.) and
its use accelerated economic activities.
 Documents such as Hundi & Chitti were used in carrying transactions. Hundi – involved a contract
which – warrants the payment of money, the unconditional order or promise; transferable through
valid negotiation.
 Indigenous Banking System played a prominent role in lending money & financing domestic &
foreign trade with currency & letter of credit.
 With the development of banking, people began to deposit precious metals with lending individuals
– Bankers or Seths and manufacturers used this money for producing more goods.

OTHER OCCUPATIONS:

 Agriculture & domestication of animals were important components of the economic life of ancient
people. Other occupations were: weaving cotton, making clay pots, utensils & handicrafts, cottage
industries, masonry (stonework), etc.
 Workshops (karkhana) were prominent where skilled artisans worked & converted raw materials
into finished goods. The artisans, craftsmen and skilled labourers of different kinds learnt &
developed skills & knowledge, which were passed on from one generation to another.

Rise of intermediaries –

 Intermediaries comprised of commission agents, brokers & distributors who played a prominent role in
the promotion of trade. They provided considerable financial security to the manufacturers by assuming
responsibility for the risks involved, especially in foreign trade.

 Jagat Seths – rich businessmen & money lenders exercised great influence during the Mughal period &
the days of East India Company. Bankers began to act as trustees.
 The emergence of credit transactions & availability of loans & advances enhanced commercial
operations. The balance of trade was favourable, where exports exceeded imports.

Transport –

 In ancient times, trade was maintained by both land & sea.

 Roads as a means of communication has assumed key importance in the entire process of growth.
  Maritime trade was another important branch of global trade network. Malabar Coast (now known as
Kerala), on which Muziris (an ancient seaport & urban centre) is situated, has a long history of
international maritime trade.
 Pepper was particularly valued in the Roman empire and known as ‘Black Gold’.
 Calicut was a busy, crowded emporium & was even visited by Chinese ships to acquire items, like
frankincense (essential oil) & myrrh (fragnant resin used in perfumes, medicines) from Middle East, as
well as pepper, diamonds, pearls & cotton from India.
 Pulicat was a major port on Coromandel Coast.

Trading Communities –

The following communities dominated trade in different regions:

i. Northern region – Punjabi & Multani merchants

ii. Western India (Gujarat & Rajasthan) – Bhats, also called Mahajan. Chief of the Mahajan community
was known as Nagarseth.
iii. Southern region - Chatt

Other urban groups included professional classes, such as hakim & vaid (physician), wakil (lawyer), etc.

Merchant Corporations –

 The merchant community derived power & prestige from ‘Guilds’ (an association of craftsmen or
merchants). These were formed to protect the interests of the traders.
 These corporations framed their own rules of membership & professional code of conduct, which even
kings used to accept & respect. They dealt directly with kings or tax collectors & settled the market toll
on behalf of its fellow merchants. They also acted as custodians of religious interests & undertook the
task of building temples and making donations.

TAXES: (types)

 Trade & industry taxes were a major source of revenue.

 Octroi duty was paid by traders on most imported articles when the product enters the state.
 Custom duties varied according to the commodities. Tariffs (paid on imports) varied from province to
province.
 Ferry tax (Ferry - a boat or ship) was another source of income generation. It had to be paid for carrying
passengers, goods, cattle or carts.
 Labour tax was usually transferred to local bodies.

Major Trade Centres – The leading trade centres in ancient India were:

1. Pataliputra – Known as Patna today; a commercial town & a major centre for export of stones.
2. Peshawar – an important exporting centre for wool & for import of horses.
3. Taxila – city of financial & commercial banks; a Buddhist centre of learning; Taxila University
flourished here.
4. Indraprastha – A commercial centre where most routes leading to east, west, south & north came
together from different directions to meet.
5. Mathura – An emporium of trade & people survived here on Commerce.
 6. Varansi – A major centre of textile industry & famous for beautiful gold silk cloth & sandalwood
workmanship.
7. Mithila – The traders of Mithila traded at ports on the islands of Java, Sumatra & Borneo.
8. Ujjain – Gemstones like Agate & Carnelian; and muslin & mallow cloth were exported from Ujjain to
different centres. Had trade relations through the land route with Taxila & Peshawar.
9. Surat – Textiles of Surat were famous for their gold borders (zari).
10. Kanchi – today known as Kanchipuram. Here, Chinese came in foreign ships to purchase pearls, glass &
rare stones, & in return sold gold & silk.
11. Madura – It was the capital of Pandayas who controlled the pearl fisheries (the act of recovering pearls
from oysters) of the Gulf of Mannar. It attracted foreign merchants for carrying overseas trade.
12. Broach – It was the greatest seat of commerce in Western India. It was situated on the banks of river
Narmada & was linked with all important markets by roadways.
13. Kaveripatta – Also known as Kaveripatnam, it was scientific in its construction as a city & provided for
loading, unloading & strong facilities of merchandise; it was the headquarters of foreign traders; Centre
of trade for perfumes, cosmetics, silk, wool, gold & ship building.
14. Tamralipti – Was one of the greatest port connected both by sea & land with the West & East.

Major Exports & Imports:

Exports – Spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals & animal products –
hides, skin, furs, horns; pearls, sapphires, quartz, crystal, etc.

Imports - Horses, animal products, Chinese silk, flax & linen, wine, gold, silver, tin, copper, lead, rubies,
coral, glass, etc.

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Economic activities are those by which we can earn our livelihood, For example, a worker working in a
factory, a doctor operating in his clinic, a manager working in an office, etc.
whereas, non-economic activities are performed out of love, sympathy, sentiment, patriotism, etc. housewife
cooking food for her family, or a boy helping an old man cross the road.

Economic activities are divided into business, Profession & employment.

Business may be defined as an economic activity involving the production & sale of goods and services
undertaken with a motive of earning profit by satisfying human needs.

Characteristics of business: (P2SE2) DU

i. Production or procurement of G & S – every bs either manufactures the goods it deals in or it

acquires them from producers, to be further sold to consumers or users.
ii. Profit earning – main objective; no bs can survive for long without earning profit. Profit can be
earned by increasing sales or reducing costs.
iii. Sale or exchange of G & S – bs involves transfer or exchange of G & S for value. If the goods are
produced not for sale, but for personal consumption, it cannot be called a business activity.
iv. Economic activity – bs is an economic activity as it is undertaken with the objective of earning
money or livelihood and not because of love, affection, sympathy or any other sentimental reason.
v. Element of risk – Risk is caused by some unfavourable or undesirable event. Eg changes in
customer’s tastes & preferences, change in methods of production, competition, etc. No business can
altogether do away with risks.
 vi. Dealings in goods & S on regular basis – Bs involves dealings in goods & services on regular basis.
One single transaction of sale or purchase does not constitute business.
vii. Uncertainty of return – it refers to lack of knowledge relating to the amount of money that the bs is
going to earn in a given period. Every bs invests money to earn profit. But it is not certain as to what
amount of profit will be earned. There is always a possibility of losses, inspite of the best efforts put
into bs.

Profession – includes those activities, which require special knowledge and skill to be applied by
individuals in their occupation. Such activities are generally subject to guidelines or code of conduct laid
down by professional bodies.

Employment – refers to the occupation in which people work for others & get remunerated in return.

Basis Business Profession Employment

1.mode of Entrepreneur’s decision & Membership of a professional App letter & service agreement
establishment other legal formalities body & certificate of practice
2. nature of Provision of goods & services Rendering of personalized, Performing work as per service
work expert services contract or rules of service
3.qualificatio No min qualification is Qualifications, expertise & Qualification & training as
n necessary training in a specific field as prescribed by the employer
prescribed by the professional
body is a must.
4.Reward or Profit earned Professional fee Salary or wages
return
5.Capital As per size & nature of Limited capital needed for No capital required
investment business establishment
6.Risk Profits are uncertain and Generally regular and certain Fixed & regular pay; no or little
irregular; risk is present. fees; some risk risk
7.transfer of Transfer possible with some Not possible Not possible
interest formalities
8.Code of No code of conduct is Professional code of conduct to Norms of behavior laid down
conduct prescribed be followed by the employer.

Business is divided into industry & commerce.

Definition - Industry refers to economic activities, which are connected with conversion of resources into
useful goods.

The term industry is also used to mean groups of firms producing similar or related goods. For example, cotton
textile industry refers to all manufacturing units producing textile goods from cotton.

Types of industries
 Primary industries Secondary industries Tertiary industries

Extractive Genetic Manufacturing Construction

industries industries industries industries

 Analytical
 Synthetical
 Processing
 Assembling

1. Primary industries – includes those activities which are connected with the extraction & production of natural resources
and reproduction and development of living organisms, plants, etc.

The 2 types of primary industries are:

i. Extractive industries – these industries extract or draw out products from natural sources. Eg farming, lumbering, mining,
etc.
ii. Genetic industries – these industries remain engaged in breeding plants & animals for their use in further production. Eg
cattle breeding farms, poultry farms, etc.
2. Secondary industries – These are concerned with using materials, which have already been extracted at
the primary state. These industries process such materials to produce goods for final consumption or
for further processing by other industrial units. For example, mining of iron ore is a primary industry,
but manufacturing of steel is a secondary industry.
The 2 types of secondary industries are:

i. Manufacturing industries – these are engaged in producing goods through processing of raw materials and thus
creating form utilities.

These are divided into:

a. Analytical – which analyses and separates different elements from the same materials eg oil refinery.
b. Synthetical – which combines various ingredients into a new product eg cement
c. Processing - it involves successive stages for manufacturing finished products. eg paper, sugar.
d. Assembling - assembles different components to make a new product. Eg car, computer
ii. Construction industries – These industries are involved in construction of roads, buildings, dams, bridges,
etc. Engineering & architectural skills are an important part in construction industries.

3. Tertiary industries – these are concerned with providing support services to primary & secondary industries as
well as activities related to trade. Also called ‘Auxiliaries to trade’ as they assist trade. Eg transport, banking,
insurance, etc.

Commerce – It embraces all those activities, which are necessary for maintaining a free flow of G & S. It
includes activities involving removal of hindrances in the process of exchange.

“Commerce includes trade and auxiliaries to trade.” Explain.

Ans. trade is buying & selling of goods but auxiliaries are required to facilitate the purchase & sale of goods. Eg
transport, banking. Commerce includes both as it helps in maintaining a free flow of G & S.
 Trade – refers to sale, transfer or exchange of goods. Trade removes hindrance of persons.

Trade may be classified into two broad categories – internal and external.
i. Internal trade is concerned with the buying and selling of goods and services within the geographical
boundaries of a country. This may further be divided into wholesale and retail trade.
a. When goods are purchased and sold in comparatively smaller quantities, for final consumption it
is referred to as retail trade.
b. When goods are purchased and sold in large quantities, it is referred to as wholesale trade.

ii. External or foreign trade consists of the exchange of goods and services between persons or
organisations operating in two or more countries.
a. If goods are purchased from another country, it is called import trade.
b. If they are sold to other countries, it is known as export trade.
c. When goods are imported for export to other countries, it is known as entrepot trade.

Auxiliaries to Trade – Activities which are meant for assisting trade & help in removal of hindrances in the process
of exchange. The various hindrances involved are:

i. Hindrance of Place - removed by Transport & Communication

ii. Hindrance of Time - removed by Warehousing
iii. Hindrance of Risk - removed by Insurance
iv. Hindrance of Finance - removed by Banking
v. Hindrance of knowledge - removed by Advertising

Auxiliaries to Trade -
1. Transport and Communication - Transport facilitates movement of raw material, to the place of
production and the finished products from factories to the place of consumption.
Production of goods generally takes place in particular locations. But these goods are required for consumption
in different parts of the country. The obstacle of place is removed by transport through road, rail or coastal
shipping.
Along with transport facility, there is also a need for communication facilities so that producers, traders and
consumers may exchange information with one another.
Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities.

2. Banking and Finance: Business activities cannot be undertaken unless funds are available for acquiring
assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained by
businessmen from a bank. Thus, banking helps business activities to overcome the problem of finance.
Commercial banks, generally lend money by providing overdraft and cash credit facilities, loans and
advances.

3. Insurance: Business involves various types of risks. Factory building, machinery, furniture, etc., must
be protected against fire, theft and other risks. Material and goods help in stock or in transit are subject
to the risk of loss or damage. Employees are also required to be protected against the risks of accident
and occupational hazards. Insurance provides protection in all such cases.

4. Warehousing: Usually, goods are not sold or consumed immediately after production. They are held in
stock to make them available as and when required. Warehousing helps business firms to overcome the
problem of storage and facilitates the availability of goods when needed.
 5. Advertising: Advertising is one of the most important methods of promoting the sale of products,
particularly, consumer goods, like electronic and automobile goods, soaps, detergents, etc. It is
practically impossible for producers and traders to contact each and every customer. Thus, for promoting
sales, information about the goods and services available, their features, price, etc., must reach potential
buyers. The potential buyers must also get information about the uses, quality, prices, etc. of the goods
and services etc. All this becomes possible due to advertising.

Role of profit in bs / Profit is the main objective of bs because:

i. It is a source of income for bs persons.

ii. Source of finance for expansion of bs.
iii. Indicates the efficient working of bs
iv. Taken as society’s approval of the utility of bs
v. Builds up the reputation of bs.

Earning profit cannot be the sole objective of a business. Too much emphasis on profit to the exclusion of
other objectives can be dangerous for good business.

- Obsessed with profits, Managers may neglect all other responsibilities towards customers, investors,
employees, & society/ exploit various sections
- Non – cooperation from affected parties
- Lose bs or unable to earn profit

Multiple objectives of bs - Objectives refer to the purpose for which an organization is established.

Why does a business need multiple objectives? –

Since a business has to balance a number of needs and goals, it requires multiple objectives. It cannot follow
only one objective and expect to achieve excellence.

Objectives have to be specific in every area and sphere of business. For example, setting of sales targets, the
amount of capital to be raised has to be estimated and the target number of units to be produced needs to be
defined.

Objectives are of 2 types: Economic & Social

Economic objectives:
i. Market Standing – position of an enterprise in relation to its competitors; must aim at strong footing
by offering competitive products to its customers & serving them to their satisfaction.

ii. Innovation – is the introduction of new ideas or methods in the way something is made or done. 2
type of innovation: in product or service & in distributing the product. No business can flourish in a
competitive world without innovation.

iii. Physical & financial resources – bs requires physical resources such as plant, machinery, etc. &
financial resources i.e. funds to be able to produce & supply G & S to its customers. The bs aims at
acquiring these resources according to their requirements and use them efficiently.

iv. Earning profits – (same expl as in features); required for expansion & growth.
 v. Productivity – Productivity is ascertained by comparing the value of output with the value of inputs.
It is a measure of efficiency. For continuous survival & progress, every enterprise must aim at
greater productivity by making best possible use of available resources.

vi. Manager performance and development – Business enterprises need managers to conduct and
coordinate business activity. Various programmes for motivating managers need to be implemented
by the enterprises. Manager performance and development, therefore, is an important objective.

vii. Worker performance and attitude: Workers performance and attitudes determine their contribution
towards productivity and profitability of any enterprise. Therefore, every enterprise must aim at
improving its workers performance.

Social objectives:
i. Supply of desired quality of products
ii. Employment generation
iii. Avoidance of unfair trade practices
iv. Social responsibility

Business risks – It refers to the possibility of inadequate profits or even losses due to uncertainties or
unexpected events.

Two types of risks – Speculative – which involves the possibility of loss or gain. Eg change in tastes &
preferences of customers.

Pure risks - which involves the possibility of loss or no loss. Eg fire, theft.

Nature of business risks: (Characteristics )

i. Bs risk arises due to uncertainty - Uncertainty refers to lack of knowledge relating to the amount of
money that the bs is going to earn in a given period. Eg changes in customer’s tastes & preferences,
change in methods of production, competition, etc.
ii. Risk is an essential part of every business – every bs has to suffer some risk. No bs can avoid risk
although the amount of risk may vary from bs to bs. Risk can be minimized, but cannot be
eliminated.
iii. Degree of risk depends upon the nature & size of bs – nature of bs (i.e. type of G & S produced &
sold) & size of bs (ie volume of production & sale) are the factors which determine the amt of risk in
a bs. Eg high risk in fashionable items & in large scale bs.
iv. Profit is the reward for risk taking – ‘No risk, no gain’ is an age old principle. Greater is the risk
involved in the bs, higher is the chance of profit. An entrepreneur undertakes risk with the
expectation of earning profit. Profit is the reward for risk taking.

Causes of bs risks:

i. Natural causes: Human beings have little control over natural calamities, like flood, earthquake,
lightning, heavy rains, famine, etc. property and income in business.
ii. Human causes: Human causes include such unexpected events, like dishonesty, carelessness or
negligence of employees, stoppage of work due to power failure, strikes, riots, management
inefficiency, etc.
iii. Economic causes: These include uncertainties relating to demand for goods, competition, price,
collection of dues from customers, change of technology or method of production, etc.
Financial problems, like rise in interest rate for borrowing, levy of higher taxes, etc., also come
under these type of causes as they result in higher unexpected cost of operation or business.
iv. Other causes: These are unforeseen events, like political disturbances, mechanical failures, such as
the bursting of boiler, fluctuations in exchange rates, etc., which lead to the possibility of business
risks.