Unit-9: INTERNAL TRADE

INTERNAL TRADE
 Buying and selling of goods and services within the boundaries of a nation are
referred to as internal trade.
 The goods are purchased from an individual or establishment within a country
 No custom duty or import duty is levied on such trade as goods are part of domestic
production and are meant for domestic consumption
 payment has to be made in the legal tender of the country or any other acceptable
currency
 Internal trade can be classified into two broad categories viz.,
 wholesale trade and
 retail trade
WHOLESALE TRADE
 Purchase and sale of goods and services in large quantities for the purpose of
resale or intermediate use is referred to as wholesale trade.
 Traders dealing in wholesale trade are called wholesale traders
RETAIL TRADE
 Purchase and sale of goods in relatively small quantities, generally to the ultimate
consumers, is referred to as retail trade
 Traders dealing in retail trade are called retailers
 Both retailers and wholesalers are important marketing intermediaries who
perform very useful functions in the process of exchange of goods and services
between producers and users or ultimate consumers
 Internal trade aims at equitable distribution of goods within a nation speedily and
at reasonable cost.

WHOLESALE TRADE
 Wholesaling is concerned with the activities of those persons or establishments which
sell to retailers and other merchants, and/or to industrial, institutional and commercial
users but who do not sell in significant amount to ultimate consumers.
 Wholesalers serve as an important link between manufacturers and retailers.
 They enable the producers to reach large number of buyers spread over a wide
geographical area (through retailers),
 Wholesalers take the title of the goods and bear the business risks by purchasing and
selling the goods in their own name.
 They purchase in bulk and sell in small lots to retailers or industrial users.
 They undertake various activities such as grading of products, packing into smaller lots,
storage, transportation, promotion of goods, collection of market information, collection
of small and scattered orders of retailers and distribution of supplies to them.
 They also relieve the retailers of maintaining large stock of articles and extend credit
facilities to them.
Services of Wholesalers
Services to Manufacturers
1. Facilitating large scale production
2. Bearing risk
3. Financial assistance
4. Expert advice
5. Help in marketing function
6. Facilitate production continuity
7. Storage
Services to Retailers
1. Availability of goods
2. Marketing Support
3. Grant of Credit
4. Specialised Knowledge
5. Risk Sharing

RETAIL TRADE
 A retailer is a business enterprise that is engaged in the sale of goods and services
directly to the ultimate consumers.
 The retailer normally buys goods in large quantities from the wholesalers and sells them
in small quantities to the ultimate consumers.
 The retails represents the final stage in the distribution where goods are transferred
from the hands of the manufacturers or wholesalers to the final consumers or users.
 Retailing is, that branch of business which is devoted to the sale of goods and services
to the ultimate consumers for their personal and non-business use.
 Retailer purchases a variety of products from the wholesale distributors and others,
arranges for proper storage of goods, sells the goods in small quantities, bears
business risks, grades the products, collects market information, extends credit to the
buyers and promotes the sale of products through displays, participation in various
schemes, etc.
Services of retailers
Services to Manufacturers and Wholesalers
1. Help in distribution of goods
2. Personal selling
3. Enabling large-scale operations
4. Collecting market information
5. Help in promotion

Services to Consumers
1. Regular availability of products
2. New products information
 3. Convenience in buying
4. Wide selection
5. After-sales services
6. Provide credit facilities

TYPES OF RETAILERS
I. Itinerant Retailers
1. Peddlers and hawkers
2. Market Traders
3. Street/Pavement Traders
4. Cheap Jacks
II. Fixed Shop Retailers
A. Small Scale – Fixed Shop retailers
1. General Stores
2. Speciality Stores
3. Street Stall holders
4. Second hand goods shop
B. Large Scale – Fixed Shop retailers
1. Departmental Stores
2. Chain Stores

1. ITENERANT RETAILERS
Itinerant retailers are traders who do not have a fixed place of business to operate from.
They keep on moving with their wares from street to street or place to place, in search of
customers. The characteristics are:
 They are small traders operating with limited resources.
 They normally deal in consumer products of daily use such as toiletry products,
fruits and vegetables, and so on.
 The emphasis of such traders is on providing greater customer service by making
the products available at the very doorstep of the customers.
 As they do not have any fixed business establishment to operate from, these
retailers have to keep their limited inventory of merchandise either at home or at
some other place.
Types of Itenarant Retailers:
1. Peddlers and hawkers:
 They are small producers or petty traders who carry the products on a bicycle, a
hand cart, a cycle-rickshaw or on their heads, and move from place to place to sell
their merchandise at the doorstep of the customers.
 They generally deal in non-standardised and low-value products such as toys,
vegetables and fruits, fabrics, carpets, snacks and ice creams, etc. They are also
found in streets of residential areas, places of exhibitions or meals, and outside
schools, during a lunch break.
 The main advantage of this form of retailing is the provision of convenient service
to the consumers. However, one should be careful in dealing with them, as the
products they deal in are not always reliable in terms of quality and price

2. Market traders
 Market traders are the small retailers who open their shops at different places on
fixed days or dates, such as every Saturday or alternate Saturdays, and so on.
  These traders may be dealing in one particular line of merchandise, say fabrics or
ready-made garments, toys, or crockery, or alternatively, they may be general
merchants.
 They are mainly catering to lower-income group of customers and deal in low-
priced consumer items of daily use.

3. Street traders (pavement vendors)

 Street traders are the small retailers who are commonly found at places where
huge floating population gathers, for example, near railway stations and bus
stands, and sell consumer items of common use, such as stationery items,
eatables, ready-made garments, newspapers and magazines.
 They are different from market traders in the sense that they do not change their
place of business so frequently.

4. Cheap jacks:
 Cheap jacks are petty retailers who have independent shops of a temporary
nature in a business locality.
 They keep on changing their business from one locality to another, depending
upon the potentiality of the area.
 However, the change of place is not as frequent as in the case of hawkers or
market traders. They deal in consumer items as well as services such as repair of
watches, shoes, buckets etc.

2. FIXED SHOP RETAILERS

 These are retail shops who maintain permanent establishment to sell their
merchandise. They, therefore, do not move from place to place to serve their
customers.
 Compared with the itinerant traders, normally they have greater resources and
operate on a relatively large scale. However, there are different size groups of
fixed shop retailers, varying from very small to very large.
 These retailers may be dealing in different products, including consumer durables
as well as non-durables.
 This category of retailers has greater credibility in the minds of customers, and
they are in a position to provide greater services to the customers such as home
delivery, guarantees, repairs, credit facilities, availability of spares, etc.

Types of Fixed Shop Retailers:

A. Fixed Shop – Small retailers

1. General Stores
 are most commonly found in a local market and residential areas. As the name
indicates, these shops carry stock of a variety of products required to satisfy the
day-to-day needs of the consumers residing in nearby localities. Such stores
remain open for long hours at convenient timings and often provide credit facilities
to some of their regular customers.
 The biggest advantage of such stores is in terms of convenience to the customers
in buying products of daily use such as grocery items, soft drinks, toiletry products,
stationery and confectionery.
 As most of their customers are residents of the same locality, an important factor
contributing to their success is the image of the owner and the rapport he has
established with them.
2. Speciality shops:
 This type of retail store is, of late, becoming very popular, particularly in urban
areas. Instead of selling a variety of products of different types, these retail stores
specialise in the sale of a specific line of products.
 For example, shops selling children’s garments, men’s wear, ladies shoes, toys
and gifts, school uniforms, college books or consumer electronic goods, etc.
These are some of the commonly found stores of this type in the marketplace.
 The speciality shops are generally located in a central place where a large number
of customers can be attracted, and they provide a wide choice to the customers in
the selection of goods.
3. Street stall holders:
 These small vendors are commonly found at street crossings or other places
where flow of traffic is heavy. They attract floating customers and deal mainly in
goods of cheap variety like hosiery products, toys, cigarettes, soft drinks, etc.
 They get their supplies from local suppliers as well as wholesalers. The total area
covered by a stall is very limited and, therefore, they handle goods on a very small
scale. Their main advantage is in providing convenient service to the customers in
buying some of the items of their needs.
4. Second-hand goods shop:
 These shops deal in second-hand or used goods, like books, clothes,
automobiles, furniture and other household goods. Generally persons with modest
means purchase goods from such shops. The goods are sold at lower prices.
Such shops may also stock rare objects of historical value and antique items
which are sold at rather heavy prices to people who have special interest in such
antique goods.
 The shops, selling second-hand goods may be located at street crossings or in
busy streets in the form of a stall having very little structure —a table or a
temporary platform to display the books or may have reasonably good
infrastructure, as in the case of those selling furniture or used cars or scooters or
motorcycles.

Fixed shop — Large stores

1. Departmental stores:
 A departmental store is a large establishment offering a wide variety of products,
classified into well-defined departments, aimed at satisfying practically every
customer’s need under one roof.
 They satisfy diverse market segments with a wide variety of goods and services.
Features of Departmental Stores
 A modern departmental store may provide all facilities, as such they try to provide
maximum service to higher class of customers for whom price is of secondary
importance.
 These stores are generally located at a central place in the heart of a city, which
caters to a large number of customers.
 As the size of these stores is very large, they are generally formed as a joint stock
company managed by a board of directors. There is a managing director assisted
by a general manager and several department managers.
 A departmental store combines both the functions of retailing as well as
warehousing. They purchase directly from manufacturers and operate separate
warehouses. That way they help in eliminating undesirable middlemen between
the producers and the customers.
  They have centralised purchasing arrangements. All the purchases in a
department store are made centrally by the purchase department of the store,
whereas sales are decentralised in different departments.
Advantages of Departmental Stores
 attracts large number of customers
 convenience in buying
 attractive services
 economy of large scale operation
 promotion of sales.
Limitations of Departmental Stores
 lacks personal attention
 high operating cost
 high possibility of loss
 Inconvenient locations

2. Multiple Shops/ Chain Stores:

 These shops are networks of retail shops that are owned and operated by
manufacturers or intermediaries dealing in standardised and branded consumer
products having rapid sales turnover.

Features of Multiple Shops/Chain Stores:

 These shops are located in fairly populous localities, where sufficient number of
customers can be approached. The idea is to serve the customers at a point which
is nearest to their residence or work place, rather than attracting them to a central
place.
 The manufacturing/procurement of merchandise for all the retail units is centralised
at the head office, from where the goods are despatched to each of these shops
according to their requirements. This results in savings in the cost of operation of
these stores.
 Each retail shop is under the direct supervision of a Branch Manager, who is held
responsible for its dayto- day management. The Branch Manager sends daily
reports to the head office in respect of the sales, cash deposits, and the
requirements of the stock.
 All the branches are controlled by the head office, which is concerned with
formulating the policies and getting them implemented.
 The prices of goods in such shops are fixed and all sales are made on cash basis.
The cash realised from the sales of merchandise is deposited daily into a local bank
account on behalf of the head office, and a report is sent to the head office in this
regard.
 The head office normally appoints inspectors, who are concerned with day-to-day
supervision of the shops, in respect of quality of customer service provided,
adherence to the policies of the head office, and so on.
Advantages of chain stores
1. economies of scale
2. elimination of middlemen
3. no bad debts
4. transfer of goods
5. diffusion of risk
6. low cost
7. flexibility
Limitations of chain stores
1. limited selection of goods
2. lack of initiative
3. lack of personal touch

DIFFERENCES BETWEEN
DEPARTMENTAL STORES AND MULTIPLE SHOPS/CHAIN STORES
 GOODS AND SERVICES TAX
 The Government of India, following the credo of ‘One Nation and One Tax’, and wanting
a unified market in order to ensure the smooth flow of goods across the country
implemented the Goods and Services Tax (GST) from July 1, 2017.

 The move also aims to make life easier for manufacturers, producers, investors and
consumers. This system is regarded as the most revolutionising tax reform in the Indian
taxation history.

 Tax apart from being a source of revenue for growth also plays a key role in making
the State accountable to its taxpayers. Effective taxation ensures that public funds are
effectively employed in fulfilling social objectives for sustainable development.

 GST is a destination-based single tax on the supply of goods and services from the
manufacturer to the consumer, and has replaced multiple indirect taxes levied by the
Central and the State governments, thereby, converting the country into a unified
market.

 Among other benefits, GST is expected to improve the ease of doing business in tax
compliance, reduce the tax burden by eliminating tax on-tax, improve tax
administration, mitigate tax evasion, broaden the organised segment of the economy
and boost tax revenues.

 The GST has replaced 17 indirect taxes (8 Central + 9 State levels) and 23 cesses of
the Centre and the States, eliminating the need for filing multiple returns and
assessments and rationalising the tax treatment of goods and services along the supply
chain from producers to consumers.

 GST comprises Central GST (CGST) and the State GST (SGST), subsuming levies
previously charged by the Central and the State governments respectively. GST (CGST
+ SGST) is charged at each stage of value addition and the supplier off sets the levy
on inputs in the previous stages of value chain through the tax credit mechanism.

 The last dealer in the supply chain passes on the added GST to the consumer, making
GST a destination-based consumption tax. The provision of availing input credit at each
stage of value chain helps in avoiding the cascading effect (tax on tax) under GST,
which is expected to reduce prices of commodities and benefit the consumers.

Some Facts about GST

 GST aims to subsume a plethora of taxes into one single tax across the country and
make goods uniformly priced across India, albeit some goods become costly and
some become cheaper.

 With the implementation of GST, luxury goods have become costlier, while items of
mass consumption have become cheaper.

 GST is not taxation at source. It is a destination tax or rather it’s a consumption tax. A
product is manufactured in Tamil Nadu and travels through the country before it
 reaches Delhi, where the buyer or consumer pays tax for it. Both the Centre and the
State have their share in this tax.

 The Indian GST will have a mechanism of matching of invoices. Input tax credit of
purchased goods and services will only be available if the taxable supplies received
by the supplies received by the supplier. The Goods and Services Tax network is a
self-regulating mechanism, which not only checks tax frauds and tax evasion, but also
brings in more and more businesses into the formal economy.

 Anti-profiteering measure is one of the key features of the recently implemented

Goods and Services Tax law. These measures prevent entities from making
excessive profits. Since the GST, along with the input tax credit, is eventually
expected to bring down prices, a National Anti-profiteering Authority (NAA) is to be
set up to ensure that the benefits accrued to entities due to reduction in costs is
passed on to the consumers. Also, entities that hike rates inordinately, citing GST as
the reason, will be checked by this body.

How will GST Benefit and Empower Citizens

 Reduction in overall tax burden
 No hidden taxes
 Development of a harmonised national market for goods and services
 Higher disposable income in hand, education and essential needs
 Customers to have wider choice
 Increased economic activity
 More employment opportunities
Key Features of GST:

1. The territorial spread of GST is the whole country, including Jammu and Kashmir.

2. GST is applicable on the ‘supply’ of goods or services as against the present concept
of tax on the manufacture or sale of goods or on the provision of services.

3. It is based on the principle of destination-based consumption tax against the present

principle of origin-based taxation.

4. Import of goods and services is treated as inter-State supplies and would be subject to
IGST in addition to the applicable customs duties.

5. CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and
the States under the aegis of the GST Council.

6. There are four tax slabs namely 5 per cent, 12 per cent, 18 per cent and 28 per cent
for all goods or services.

7. Exports and supplies to SEZ are zero-rated.

8. There are various modes of payment of tax available to the taxpayer, including Internet
banking, debit/credit card and National Electronic Funds Transfer (NEFT)/Real Time
Gross Settlement (RTGS).