CHAPTER-1

Business, Trade and

Commerce
 History of Trade and Commerce
➢ Indian subcontinent has Himalayas in the North
and bordered by water in the South.
➢ Silk Routes, a network of roads helped in
establishing commercial and political contacts
with adjoining foreign kingdoms
➢ With the help of wealth earned through trade, the
chief kingdoms, important trade centres and the
industrial belt flourished that helped ancient India
 Indigenous Banking System
➢ Metals came to be used as money as the economic life of
the people progressed as they are durable and divisible.

→ This accelerated economic activities.

➢ Documents such as Hundi and Chitti were in use for

carrying out transactions in which money passed from
hand to hand.

→ Hundi involved a contract which — (i) warrant the

payment of money, the promise or order which is
unconditional (ii) capable of change through transfer by
valid negotiation.
 Rise of Intermediaries
• Intermediaries provided considerable financial security
to the manufacturers by assuming responsibility for the
risks involved, especially in foreign trade.

• During the Mughal period and the days of the East India
Company, the institution of Jagat Seths also developed
and exercised great influence.

• Commercial and Industrial banks later evolved to finance

trade and commerce and agricultural banks to provide
both short-and long-term loans to finance agriculturists.
 Transport:
• Transport by land and water was popular in the
ancient times that helped in maintaining trade.

• Trade routes were structurally wide and suitable for

speed and safety.

• Maritime trade was another important branch of

global trade network.
 Trading Communities Strengthened
➢ In different parts of the country, different
communities dominated trade.

→ Punjabi and Multani merchants handled business

in the northern region.

→ The Bhats managed the trade in the states of

Gujarat and Rajasthan.

➢ Other urban groups included professional classes,

such as hakim and vaid (physician), wakil
(Lawyer), pundit or mulla (teachers), painters,
musicians, calligraphers, etc.
 Merchant Corporations

❑ Guilds were autonomous corporations formed to protect

the interests of the traders through which merchant
community also derived power and prestige.

❑ The guild chief dealt directly with the king or tax

collectors and settled the market toll on behalf of its
fellow merchants at a fixed sum of money.
❑ Customs duties varied according to the
commodities and from province to
province.

❑ The ferry tax was another source of

income generation which had to be
paid for passengers, goods,
cattle and carts.

❑ Traders had to pay octroi duties that

were levied on most of the imported
articles at varying rates.
 Major Trade Centres
❖ In ancient India, the leading trade centres in
ancient India were:
→ Pataliputra: Known as Patna today was a
commercial town and also a major centre for export of
stones.

→ Peshawar: It was an important exporting centre for wool

and for the import of horses.

→ Taxila: It served as a major centre on the important land

route between India and Central Asia. It was also a city of
financial and commercial banks. The famous Taxila
University flourished here.
 Major Exports and Imports
Exports
❖ Spices, wheat, sugar, indigo, opium,

sesame oil, cotton, parrot, live animals

and animal products—hides, skin, furs,
horns, tortoise shells, pearls, sapphires,
quartz, crystal, lapis, lazuli, granites,
turquoise and copper etc.
 Imports

❖ Horses, animal products, Chinese

silk, flax and linen, wine, gold,
silver, tin, copper, lead, rubies,
coral, glass, amber, etc.
 Position of Indians Subcontinent In
World Economy
➢ Between the 1st and the 7th centuries 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.

➢ The 18th century India was far behind Western Europe in

technology, innovation and ideas.

➢ In the mid-18th century, the British empire began to take roots

in India and used revenues generated by the provinces under
its rule for purchasing Indian raw materials, spices and goods.
→ Hence, the continuous inflow of bullion that used to come
on account of foreign trade stopped.
 India begins to Reindustrialise
➢ In 1952, the First Five Year Plan was implemented and importance was
given to the establishment of modern industries, modern technological
and scientific institutes, space and nuclear programmes.

➢ However, the Indian economy could not develop at a rapid pace due
to lack of capital formation,
rise in population, huge expenditure on defence and
inadequate infrastructure.

➢ Thus, India relied heavily on borrowings from foreign sources and

finally, agreed to economic liberalisation in 1991.

➢ Today, Indian economy is one of the fastest growing economies in the

world today and a preferred FDI destination.
 Section II
Nature and Concept of Business

Concept of Business

❑ Business means being busy.

❑ Business refers to an occupation in which

people regularly engage in activities related
to purchase, production and/or sale of goods
and services with a view to earning profits.
 Characteristics of Business Activites
❑ An economic activity: Business in considered as an
economic activity as it is undertaken with the objective of
earning money.

❑ Production or procurement of goods and services:

Business includes all the activities concerned with the
production of procurement of goods & services for sales.
Services include transportation, banking, Insurance etc.

❑ Sale or exchange of goods and service: There should be

sale or exchange of goods and service between the seller
& the buyer. If goods are produced not for the purpose of
sale but say for internal consumption it cannot be called a
business activity.
 Comparison of Business, Profession
and Employement
❑ Employment: It Refers to those economic activities which are
connected with purchase, production or sale of goods & services
with the objective of earning profit.
Examples: Fishing, Manufacturing Goods, Mining Producing or
selling of electronic goods, Banking.

❑ Profession: It includes those activities which require special

knowledge be skills in the occupation.
Examples: Medical (Doctor), Legal (Lawyer), Accountancy (CA).

❑ It refers to the occupation in which people work for others and

get remuneration in return.
Examples: Worker, Employee, Salesman.
 Classification of Business Activities

• Industry deals with the production

or processing of goods and
materials.

• Commerce deals with distribution

of goods and services.
 Industry:
❑ Primary Industry: The primary industry includes those activities
through which the natural resources are used to provide raw
material for other industries. It can be classified into two types:

Extractive: Industry under which something is extracted

out of earth, water or air such as Coal, Iron, gas. Examples
are Mining, Lumbering, etc.

Genetic: Industries under which the breed of animals and

vegetables are improved and made more useful. Examples
are Poultry Farms, dairy Farming, etc.
 Commerce
➢ The function of commerce are:
❑ Removing the hindrance of person by making goods
available to consumers from the producers. through
trade.
❑
Transportation removes hindrance of place by moving
goods from the place of production to the markets for
sale.

❑ Storage and warehousing activities remove the

hindrance of time by facilitating holding of stock of
goods to be sold as and when required.
 Objective of Business
❑ Market standing: Market standing refers to the
position of an enterprise in relation to its
competitors.

❑ Innovation: Innovation is the introduction of new

ideas or methods in the way something is done or
made.

❑ Productivity: Productivity is ascertained by

comparing the value of output with the value of
inputs.
 Business Risk
Nature of Business Risks:

(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.

 Starting a Business - Basic Factors
(i) Selecting the line of business: The first thing to be
decided by the entrepreneur is the line and type of
business to be undertaken.

(ii) Size of business: After deciding the line of business, the

entrepreneur must decide whether he wants to set up
large scale or small scale business.

(iii) Choice of form of Business organization: A business

organisation may take the form of a sale proprietorship,
partnership, or a joint stock company.
(iv) Location of Business Enterprise: The entrepreneur
has to decide the place where the enterprise will be
located. Before taking this decision he must find out
availability of raw materials, power, labour,
banking, transportation etc.

(v) Financing the proposition: It is concerned with

providing the necessary capital for starting, as well
as, for continuing the proposed business.

(vi) Physical facilities: Availability of physical

facilities, including machines and equipment,
building and supportive services is an important
factor to be considered at the start of the business.
 Q1- State the meaning of business

Answer:
The term ‘Business’ is derived from the term ‘busy.’ As a
result, running business demands being busy. In a more
exact sense, business refers to an occupation in which
individuals regularly participate in purchasing,
manufacturing, and selling products and services to make
money. Production or acquisition of commodities for resale,
as well as the exchange of goods or the supply of services
to meet the needs of others, might all be part of this
process.
 Q2. State the objectives of business
Answer:
➢ The following are some business objectives:

❑ Innovation: Every Business must develop novel ideas

and innovations and apply them to stay afloat and
develop.

❑ Productivity: When the value of the output is compared to

the value of the input, productivity is established.

❑ Earning Profits: Any business entity open for business

must make a decent profit to survive and develop.
 Q3. State the different types of
economic activities.
Answer:

❑ Profession: These tasks need specialised knowledge

and abilities, and those participating are
professionals.

❑ Employment: It is an economic activity in which

individuals are paid for their services and are
referred to as employees.

❑ Business: Business is an economic activity involving

the trade of products and services for profit.