PART I

Foundations of Business

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 CHAPTER 1

BUSINESS, TRADE AND COMMERCE

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

i. Appreciate the development of trade and commerce

in historical past;

ii. Understand the role of indigenous banking system in

trade and commerce;

iii. Explain the concept and objectives of business;

iv. Discuss types of industries;

v. Explain the activities relating to commerce;

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BUSINESS, TRADE AND 3
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Imran, Manpreet, Joseph and Priyanka have been

classmates in Class X. After their exams are over, they
happen to meet at a common friend Ruchika’s house.
Just when they were sharing their experiences of
examination days, Ruchika’s father Raghuraj
Chaudhary intervenes and asks about their well- being.
He also enquires about their career plans. But none of
them had a definite reply. Raghuraj who himself is a
successful businessman tells them about business as a
career opportunity. Joseph gets excited by the idea and
says “yes, business is really good for making lots of
money”. Raghuraj tells them that ‘there is a lot more to
business than merely money’. Business activities lead to
growth and development of any country, he added. He
further tells them that the roots of business activities
can be traced back to ancient times and how trading
helps in the prosperity of the Indian subcontinent.
Priyanka said that they have read about the Silk Route

1.1 INTRODUCTION required by people. The

purpose behind most
All human beings, wherever
business activities is to earn
they may be, require
money by meeting people’s
different types of goods and
demands for goods and
services to satisfy their
services. Business is central
needs. The necessity of
to our
supplying goods and
services has led to certain
activities being undertaken
by people to produce and
sell what is needed by others.
Business is a major
economic activity in all
modern societies concerned
as it is concerned with the
production and sale of
goods and services

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lives. Although our lives are
influenced by many other
institutions in modern
4 BUSINESS
society, such as schools, STUDIES

colleges, hospitals, political

parties and religious bodies,
business has a major
influence on our daily lives. It,
therefore, becomes
important that we
understand the concept,
nature and purpose of
business.
The chapter is divided
into two sections. Section I
deals with the history of
trade and commerce in
ancient India. Section II deals
with the concept, nature
and purpose of business.

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BUSINESS, TRADE AND 5
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SECTION I have played a vital role in

making India to envolve as
History of Trade and Commerce a major actor in the

The economic and economic world in

com m e rcial evolution of ancient times.

any land depends upon its Archaeological evidences

physical environment. This have shown that trade

stands true for the Indian and commerce was the

subcontinent as a whole mainstay of the economy

which has Himalayas in of ancient India carried

the North bordered by out by water and land.

Commercial cities like
water in the South. A
network of roads merging Harappa and

into the Silk Route helped Mohenjodaro were

in establishing commercial founded in the third

and political contacts with millennium B.C. The

adjoining foreign civilisation had

kingdoms and empires of established commercial

Asia, in particular, and the connections wit h

world, in general. The Mesopotamia and traded in

maritime routes linked the gold, silver, copper,

east and the west by sea coloured gemstones, beads,

and were used for the pearls, sea shells,

trade of spices and known terracotta pots, etc.

as ‘spice route’. Due to the flow

of wealth through these
routes, the chief kingdoms,
important trade centres
and the industrial belt
flourished, which in turn
further facilitated the
progress of domestic and
international trade in
ancient India.
Trade and commerce

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The period was marked by order which is
substantial commercial unconditional (ii) capable
activities and urban of change through transfer
development. Political by valid negotiation.
economy
6 and military Indigenous banking system
BUSINESS
STUDIES
security during ancient times played a prominent role in
united most of the Indian lending money and
subcontinent and trade financing domestic and
regulations were carefully foreign trade with currency
planned. There were diverse and letter of credit. With
types of coins and weighing the development of
practices which used to vary banking, people began to
from place to place with the deposit precious metals
help of money changers and with lending individuals
by resorting to certain functioning as
comm only accepted weights
and measures.

1.1 Indigenous Banking System

As economic life progressed,

metals began to
supplement oth er
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 for
carrying out transactions in
which money passed from
hand to hand. Hundi as an
instrument of exchange,
which was prominent in
the subcontinent. It
involved a contract which — (i)
warrant the payment of
money, the promise or

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BUSINESS, TRADE AND 7
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Hundi as practised by Indian Merchaant Communities

Name of Hundi Broader Functions of Hundi
Classification
Dhani-jog Darshani Payable to any person—
no liability over who
received
payment.
Sah-jog Darshani Payable to a specific
person, someone
‘respectable’. Liability
over who received payment.
Firman-jog Darshani Hundi made payable to
order.
Dekhan-har Darshani Payable to the presenter or
bearer.
Dhani-jog Muddati Payable to any person—no
liability over who received
payment, but payment over
a fixed term.
Firman-jog Muddati Hundi made payable to
order following a fixed
term.
Jokhmi Muddati Drawn against dispatched
goods. If goods lost in
transit, the drawer or
holder bears the coasts,
and the
Drawee carries no liability.

bankers or Seths, and money of the economic life of

became an instrument for ancient people. Due to the

supplying the favourable climatic

manufacturers with a conditions they were able

means of producing more to raise two or sometimes

goods. three crops in a year. In

addition to this, by
Agriculture and the
resorting to weaving
domestication of animals
cotton, dyeing fabrics,
were important components

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making clay pots, utensils,
Workshops (Karkhana)
and handicrafts, sculpting, were prominent where
cottage industries, skilled artisans worked
masonry, manufacturing, and converted raw
transports
8 (i.e., carts, boats materials into finished
BUSINESS
STUDIES
and ships), etc., they were goods which were high in
able to generate surpluses
demand. Family-based
and savings for further
apprenticeship system was
investment.
in practice and duly
followed in acquiring
trade-specific skills. The
artisans, craftsmen and
skilled labourers of
different kinds learnt and
developed skills and
knowledge, which were
passed on from one
generation to another.

1.2.1 Rise of Intermediaries

Intermediaries played a
prominent role in the
promotion of trade. They
provided considerable
finan cial

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BUSINESS, TRADE AND 9
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security to the favourable balance of

manufacturers by trade, where exports
assuming responsibility for exceeded imports with
the risks involved, especially large margins and the
in foreign trade. It indigenous banking system
comprised commission benefitted the
agents, brokers and manufacturers, traders
distributors both for and merchants with
wholesale and retail goods. additional capital funds
An expanding trade for expansion and
brought in huge amounts development. Commercial
of silver bullion into Asia and Industrial banks later
and a large share of that evolved to finance trade
bullion gravitated towards and commerce and
India. The institution of agricultural banks to
Jagat Seths also developed and provide both short-and
exercised great influence long-term loans to
during the Mughal period finance
agriculturists.
and the days of the East
India Company. Bankers 1.3 TRANSPORT
began to act as trustees
Transport by land and
and executors of
water was popular in the
endowments. Foreign
ancient times. Trade was
trade was financed by
maintained by both land
loans. However, the rate of
and sea. Roads
interest for longer voyages
was kept high in view of the
huge risk involved. The
emergence of
credit transactions
and availability of loans
and advances enhanced
commercial [Link]
Indian subcontinent
enjoyed the fruits of

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as a means of bustling emporium that it
communication had was even visited by Chinese
assumed key importance in ships to acquire items, like

the entire process of growth, frankincense (essential oil)

and myrrh (fragrant
BUSINESS resin
particularly
10 of the inland
used in perfumes,
STUDIES
trade and for trade over
medicines) from the Middle
land. The northern roadway
East, as well as, pepper,
route is believed to have
diamonds, pearls and cotton
stretched originally from
from India. On the
Bengal to Taxila. There were
Coromandel Coast, Pulicat
also trade routes in the
was a major port in the
south spreading east and
17th century. Textiles
west. Trade routes were
were the principal export
structurally wide and
from Pulicat to Southeast
suitable for speed and safety.
Asia.
Maritime trade was another
important branch of global
trade network. Malabar
Coast, on which Muziris is
situated, has a long history
of international maritime
trade going back to the era
of the Roman Empire.
Pepper was particularly
valued in the Roman
Empire and was known as
‘Black Gold’. For centuries, it
remained the reason for
rivalry and conflict
between various empires
and trade powers to
dominate the route for this
trade. It was in the search
for an alternate route to
India for spices that led to
the discovery of America by
Columbus in the closing
years of 15th century and
also brought Vasco da Gama
to the shores of Malabar in
1498.
Calicut was such a

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1.4 Trading Communities corporations, organised

Strengthened on formal basis, framed
In different parts of the their own rules of
country, different membership and
communities dominated professional code of
trade. Punjabi and Multani conduct, which even
me rch ants handled kings were supposed to
business in the northern accept and respect. Trade
region, while the Bhats and industry taxes were
managed the trade in the also a major source of
states of Gujarat and revenue. Traders had to
Rajasthan. In western pay octroi duties that
were levied on most of the
India, these groups were
imported articles at varying
called Mahajan, Chatt is were
rates. They were paid
important traders from the
either in cash or in kind.
South. In urban centres,
Customs duties varied
such as Ahmedabad the
according to the
Mahajan community
commodities. Tariffs varied
collectively represented by
from province to province.
their chief called nagarseth.
The ferry tax was another
Other urban grou ps
source of income
included professional classes,
generation.
such as hakim and vaid
(physician), wakil (Lawyer),
pundit or mulla (teachers),
painters, musicians,
calligraphers, etc.

1.4.1 Merchant Corporations

The merchant community
also derived power and
prestige from guilds, which
were autonomous
corporations formed to
protect the interests of the
traders. These

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 2. PESHAWAR: It was an
It had to be paid for
important exporting
passengers, goods, cattle
and carts. The right to centre for wool and for the
receive the labour tax was import of horses. It had a
usually
12 transferred to the huge share in BUSINESS
commercial
local bodies. transactions between
STUDIES India,

The guild chief dealt China and Rome in the

directly with the king or tax first century A.D.
collectors and settled the 3. TAXILA: It served as a
market toll on behalf of its major centre on the
fellow merchants at a fixed important land route
sum of money. The guild between India and Central
merchants also acted as Asia. It was also a city of
custodians of religious financial and commercial
interests. They undertook the banks. The city occupied an
task of building temples and important
made donations by levying
a corporate tax on their
members. The commercial
activity, thus, enabled big
merchants to gain power in
the society.

1.4.2 Major Trade Centres

There were all kinds of
towns—port towns,
manufacturing
towns, mercantile
towns, the sacred centres,
and pilgrimage towns. Their
existence is an index of
prosperity of merchant
communities and
professional classes.
The following were the
leading trade centres in
ancient India:
1. P ATALIPUTRA : Known as
Patna today. It was not
only a commercial town, but
also a major centre for export
of stones.

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BUSINESS, TRADE AND 13
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place as a Buddhist centre especially in Yunnan.

of learning. The famous 8. UJJAIN: Agate, carnelian,
Taxila Unive rsity muslin and mallow cloth
flourished here. were exported from Ujjain
4. I ND R A P R A S T H A : It was to different centres. It also
the commercial junction on had trade relations

the royal road where most through the land route

with Taxila and Peshawar.
routes leading to the east,
9. S URAT : It was the
west, south and north
emporium of western
converged.
trade during the Mughal
5. MATHURA: It was an
period. Textiles of Surat
emporium of trade and
were famous for their gold
people here subsisted on
borders (zari). It is
commerce. Many routes
noteworthy that Surat
from South India touched
hundi was honoured in far
Mathura and Broach.
off markets of Egypt and
6. VARANASI: It was well
Iran.
placed as it lay both on the
10. K ANCHI : Today
Gangetic route and on the
known as Kanchipuram,
highway that linked North
it was here that the
with the East. It grew as a
Chinese used to come in
major centre of textile
foreign ships to
industry and became
famous for beautiful gold
silk cloth and sandalwood
workmanship. It had links
with Taxila and Bharuch.
7. MITHILA : The traders 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 Java,
Sumatra and Borneo.
Mithila established trading
colonies in South China,

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purchase pearls, glass and Exports consisted of spices,
wheat, sugar, indigo,
rare stones and in return
opium, sesame oil, cotton,
they sold gold and silk.
parrot, live animals and
11. MADURA: It was the capital
animal products—hides,
of the
14 Pandayas who BUSINESS
skin, furs, horns, tortoise
STUDIES
controlled the pearl fisheries
shells, pearls, sapphires,
of the Gulf of Mannar. It
quartz, crystal, lapis, lazuli,
attracted foreign granites, turquoise and
merchants, particularly copper etc.
Romans, for carrying out
overseas trade.
12. BROACH: It was the
greatest seat of commerce in
Western India. It was situated
on the banks of river
Narmada and was linked
with all important marts by
roadways.
13. K AVERIPATTA : Also known
as Kaveripatnam, it was
scientific in its construction
as a city and provided
loading, unloading and strong
facilities of merchandise.
Foreign traders had their
headquarters in this city. It
was a convenient place for
trade with Malaysia,
Indonesia, China and the Far
East. It was the centre of
trade for perfumes, cosmetics,
scents, silk, wool, cotton,
corals, pearls, gold and
precious stones; and also
for ship building.
14. T AMRALIPTI : It was one of
the greatest ports
connected both by sea and
land with the West and the
Far East. It was linked by
road to Banaras and Taxila.

1.4.3 Major Exports and Imports

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BUSINESS, TRADE AND 15
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Imports included horses, Indian economy and

animal products, Chinese made the Europeans
silk, flax and linen, wine, embark great voyage of
gold, silver, tin, copper, discovery. Initially, they
lead, rubies, coral, glass, came to plunder but soon
amber, etc. realised the rewards of
trade in exchange of gold
1.5 POSITION OF INDIAN SUBCONTINENT
IN WORLD ECONOMY ( 1 AD UP and silver. Despite the
TO 1991) growing commercial sector,
it is evident that the 18th
Between the 1st and the 7th
century India was far
centuries CE, India is
behind Western Europe in
estimated to have the largest
technology, innovation and
economy of the ancient and
ideas. With the increasing
medieval world, controlling
control of the East India
about one- third and one-
Company causing lack of
fourth of the world’s wealth
freedom and no occurrence
(timeline). The country was
of agricultural and
often referred to as
scientific revolution, limited
‘S waranbhumi’ and ‘Swarndweep’
in the writings of many reach of education to the

travellers, such as masses, population growth

Megasthenes, Faxian (Fa and preference to machines
Hien), Xuanzang (Huen over manual skills made
Tsang), Al Beruni (11th India a country which was
century), Ibn Batuta (11th prosperous but with people
century), Frenchman who were poor.
Francois (17th century) and The British empire began
others. They repeatedly refer to take roots in India in
to the prosperity of the the mid – 18th century.
country. The East India Company
The pre-colonial period in used revenues generated
Indian history was an age of by the provinces under its
prosperity for rule for purchasing Indian
raw materials, spices and
goods. Hence, the
continuous inflow

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16 BUSINESS
STUDIES

Source: Angus Maddison (2001 and 2003), The World Economy: A Millennial Perspective, OECD,
Paris; Angus Maddison, The World Economy, Historical Statistics

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BUSINESS, TRADE AND 17
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of bullion that used to infrastructure were the

come on account of foreign major reasons. As a result,
trade stopped. This India relied heavily on
changed the condition of borrowings from foreign
the Indian economy from sources and finally,
being an exporter of agreed to eco no m ic
processed goods to the liberalisation in 1991.
exporter of raw materials The Indian economy is
and buyer of manufactured one of the fastest growing
goods. economies in the world
today and a preferred FDI
1.5.1 India begins toReindustrialise destination. Rising incomes,
After Independence, the savings, investment
process of rebuilding the opportunities, increased
economy started and India domestic consumption and
went for centralised younger population ensures
planning. The First Five Year growth for decades to come.
Plan was implemented in The high growth sectors
1952. Due importance was have been identified, which
given to the establishment are likely to grow at a rapid
of mo dern industries, pace world over and the
modern technological and recent initiatives of the
scientific institutes, space Government of India such as
and nuclear programmes. ‘Make in India’, Skill India’,
Despite these efforts, the
‘Digital India’ and roll out of the
Indian economy could not
Foreign Trade Policy (FTP
develop at a rapid pace.
2015-20) is expected to
Lack of capital formation,
help the economy in terms
rise in population, huge
of exports and imports and
expenditure on defence
trade balance.
and in adeq uate

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Indian entrepreneurs began to set up their own modern
textile mills after 1850 and, gradually, began to recapture
the domestic market. In 1896, Indian mills supplied 8% of
the total cloth consumed in India, 20% in 1913, 62% in
1936 and
18 BUSINESS
76% in 1945. Thus, during 1913-1938
STUDIES India’s
manufacturing output grew 5.6% during per year, which
was above the world average of 3.3%. The British
government, finally, provided tariff protection from 1920s,
which helped industrialists to expand and diversify.
By the time of Independence in 1947, Indian entrepreneurs
were strong enough and in a position to buy the businesses

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BUSINESS, TRADE AND 19
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SECTION II

NATURE AND CONCEPT OF BUSINESS In every society, people

undertake various activities
1.6 CONCEPT OF BUSINESS to satisfy their needs.
The term business is derived These activities may be
from the word ‘busy’. Thus, broadly classified into two
business means being busy. groups — economic and
However, in a specific non-economic. Economic
sense, business refers to an activities
occupation in which people
regularly engage in
activities related to
pur ch as e, production
and/or sale of goods and
services with a view to
Try it yourself:
earning profits. The activity
State whether each of the following is an economic
may consist of production
activity:
or purchase of goods for
sale, or exchange of goods
1. Farmer growing rice for her own consumption.
or supply of services to
satisfy the needs
2. A factory of other school bags for sale in the
owner producing
people.
market.

3. Person begging at a busy traffic intersection.

4. Services of a domestic help doing household

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are those by which we can human needs in society.
earn our livelihood, whereas,
non-economic activities are
performed out of love,
sympathy,
20 sentiment, BUSINESS
patriotism, etc. For example, STUDIES

a worker working in a
factory, a doctor operating in
his clinic, a manager working
in an office and a teacher
teaching in a school are doing
so to earn their livelihoods
and are, therefore, engaged
in an economic activity. On
the other hand, a housewife
cooking food for her family,
or a boy helping an old man
cross the road are
performing non-economic
activities since they are doing
so out of love or sympathy.
Economic activities may be
further divided into three
categories, namely
business, profession and
employment. Business

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

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BUSINESS, TRADE AND 21
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1.6.1 Characteristics of Business produced or procured

Activities by business enterprises.
In order to appreciate how Thus, every business
business activity is different enterprise either
from other activities in manufactures the goods
society, the nature of it deals in or acquires
business or its them from producers,
fundamental character to be further sold to
must be explained in terms consumers or users.
of its distinguishing Goods may consist of
characteristics, which are as consumable items of
follows: daily use, such as sugar,
(i) An economic activity: ghee, pen, notebook,
Business is considered to etc., or capital goods,
be an economic activity like machinery,
because it is undertaken furniture, etc., Services
with the objective of may include facilities
earning money or offered to consumers,
livelihood and not out of business firms and
love, affection, sympathy organisations in the
or any other emotion. It form of transportation,
may be mentioned here banking, electricity, etc.
that this activity can be
undertaken either on
small and individual level,
e.g. (purchase and sale
by a shopkeeper) or on
large scale in a more
formal and organised
level (purchase and sale
by a cooperative society
or company).
(ii) Production or procurement of
goods and services: Before
goods are offered to
people for consumption,
these must be either

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(iii) Sale or exchange of goods and is to earn income by
services: Directly or way of profit. No
indirectly, business business can survive for
involves transfer or long without profit.
exchange
22 of goods and That isBUSINESSwhy,
services for value. If goods businessmen STUDIES
make all
are produced not for possible efforts to
the purpose of sale but for maximise profits, by
personal consumption, it increasing the volume of
cannot be called a business sales or reducing costs.
activity. Cooking food at
home for the family is not
business, but cooking food
and selling it to others in
a restaurant is business.
Thus, one essential
characteristic of business
is that there should be
sale or exchange of
goods or services between
the seller and the buyer.
(iv) Dealings in goods and services
on a regular basis: Business
involves dealings in
goods or services on a
regular basis. One single
transaction of sale or
purchase, therefore,
does not constitute
business. Thus, for
example, if a person sells
his/her domestic radio set
even at a profit, it will not
be considered a business
activity. But if he/she sells
radio sets regularly
either through a shop or
from his/her residence, it
will be regarded as a
business activity.
(v) Profit earning: One of the
main purpose of business

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BUSINESS, TRADE AND 23
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(vi) Uncertainty of
return: 1.6.2 Comparison of Bu sin ess,
Uncertainty of
return Profession and Employment
refers to the lack of
As has been mentioned
knowledge relating to
earlier, eco n o m i c
the amount of money
act iv it ie s may be divided
that the business is going
into three major
to earn in a given period.
categories viz., Bu s in e s s,
Every business invests
Pr o fe s s io n and
money (capital) to run its
Employment. The
activities with the
difference between these
objective of earning profit.
three terms is given in
But it is not certain as to
the following table.
what amount of profit
will be earned. Also, 1.7 C LASSIFICATION OF B USINESS
there is always a ACTIVITIES
possibility of losses being Various business activities
incurred, dispite the best may be classified into two
efforts put into the broad categories —
business. industry and commerce.
(vii)Element of risk: Risk is Industry is concerned
the uncertainty with the production or
associated with an
exposure to loss. It is
caused by some
unfavourable or
undesirable

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 Business Functions at Enterprise Level

Business includes a wide variety of functions performed

by different kinds of organisations called business
enterprises or firms. Financing, production, marketing
24
and human resource management are the BUSINESS
four major
STUDIES
functions which are performed by business enterprises.
Financing is concerned with mobilising and utilising
funds for running a business enterprise. Production
involves the conversion of raw materials into finished
products or generation of services. Marketing refers to all
those activities which facilitate exchange of goods and
event. Risks are related processing of goods and
with factors, like changes materials. Commerce
includes all those activities,
in consumer taste and
which are necessary for
fashion, changes in
facilitating the exchange of
method of production,
goods and services. On the
strike or lockout at basis of these two categories,
workplace, increased we may classify business
competition in market, firms into industrial and
fire, theft, accidents, commercial ent erp ris es.
natural calamities, etc. Let us examine in detail the
No business can activities relating to
altogether do away with business.
risks.

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BUSINESS, TRADE AND 25
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Basic Business Profession Employment

1. Mode of Entrepreneur’ Membership Appointmen

establishm s decision and of a t letter and
ent other legal professional service
formalities, if body and agreement
necessary certificate of
practice

Provision of Rendering Performing

2. Nature work as per
goods and of
of work service
services to the personalise
public d, expert contract or
services rules
of service
Qualifications, Qualification
3. No expertise and and training
minimum training in as prescribed
Qualificatio
qualificatio specific field by the
n
n is as prescribed employer
necessary by the
professional
body is a
must
4. Profit earned Professional Salary or
Reward fee wages
or
return

5. Capital Capital Limited No

investment
investmen capital capital
required as
t per size and needed for require
nature of establishmen d
business t
Profits are Fee is Fixed and
6. Risk
uncertain and generally regular pay;
irregular; risk regular and no or little
is present certain; risk
some risk

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26 BUSINESS
7. Transfer Transfer Not possible Not possible
STUDIES

of interest possible with

some
formalities

8. Code of No code of Norms of

Professional behaviour
conduct conduct is code of laid down
prescribed conduct is to by the
employer
be followed
are to be
followed
Shop, factory Legal, Jobs in
9. Example
medical banks,
profession, insurance
chartered companies,
accountancy government
departments

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BUSINESS, TRADE AND 27
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1.7.1 Industry primary, secondary and

tertiary.
Industry refers to economic
(i) Primary industries: These
activities, which are
include all those
connected with conversion of
activities which are
resources into useful goods.
concerned with the
Generally, the term
extraction and
industry is used for
production of natural
activities in which
resources and
mechanical appliances and
reproduction and
technical skills are involved.
development of living
These include activities
organisms, plants, etc.
relating to producing or
These are divided as
processing of goods, as well
follows.
as, breeding and raising of (a) Extractive industries:
animals. The term industry These industries extract
is also used to mean groups or draw products from
of firms producing similar natural sources.
or related goods. For Extractive industries
example, cotton textile supply some basic raw
industry refers to all materials that are
manufacturing units mostly products of
producing textile goods geographical or
from cotton. Similarly, natu ral environment.
electronic industry would Products of these
include all firms
producing electronic goods,
and so on. Further, in
common parlance, certain
services, like banking and
insurance, are also referred
to as industry, say banking
industry, insurance
industry, etc. Industries may
be divided into three broad
categories namely

2020-21
 industries are usually Secondary industries
transformed into many may be further divided
other useful goods by as follows:
(a) Manufacturing industries:
manufacturing
These industries are
in du
28 strie s. Important BUSINESS
engaged inSTUDIES
producing
extractive industries
goods through processing
include farming,
of raw materials and,
min ing , lumbering,
thus, creating form
hunting and fishing
utilities. They bring out
operations.
diverse finished products,
(b) Genetic industries: These
that we consume, or use
industries are engaged in
through the conversion of
breeding plants and
raw materials or partly
animals for their use in
finished materials
further reproduction.
Seeds and nursery
companies are typical
examples of genetic
industries. In additional,
activities of cattle
breeding farms, poultry
farms, and fish hatchery
come under genetic
industries.
(ii) Secondary industries: These
are concerned with using
materials, which have
already been extracted at
the primary state.
Thes e industries process
such materials to
produce goods for final
consumption or for
furt her processing by
other industrial units.
For example, mining of
iron ore is a primary
industry, but
manufacturing of steel by
way of further processing
of raw irons is a
secondary industry.

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BUSINESS, TRADE AND 29
COMMERCE

in their manufacturing (b) Construction industries:

These industries are
operations.
involved in the
Manufacturing industries
construction of
may be further divided
buildings, dams, bridges,
into four categories on
roads as well as tunnels
the basis of method of
and canals.
operation for production.
Engineering and
• Analytical industry which architectural skills
analyses and separates are an important part
different elements from in construction
the same materials, as in industries.
the case of oil refinery. (iii) Tertiary industries: These
• Synthetical industry which are concerned with
combines various providing support
ingredients into a new services to primary and
product, as in the case of secondary industries as
cement. well as activities
• Processing industry relating to trade. These
which involves industries provide
successive stages for service facilities. As
manfucturing finished business activities, these
products, as in the case may be considered
of sugar and paper. part of commerce
• Assembling industry because as auxiliaries to
which assembles trade these activities
different component assist trade. Included
parts to make a new in this category are
product, as in the case transport, banking,
of television, car, insurance, warehousing,
computer, etc. communication,
packaging and
advertising.

2020-21
 Chart Showing Business Activities

30 BUSINESS
STUDIES

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BUSINESS, TRADE AND 31
COMMERCE
1.7.2 Commerce persons, place, time, risk,
Commerce includes two finance, etc. The hindrance
types of act iviti es, viz., (i) of persons
trade and (ii) auxiliaries
to trade. Buying and selling
of goods is termed as trade.
But there are a lot of
activities that are required
to facilitate the purchase
and sale of goods. These
are called services or
auxiliaries to trade and
include transport,
banking, in su ran ce,
communication,
ad vertis em en t,
packaging and
wareho usin g. Commerce,
therefore, includes both,
buying and selling of goods
i.e., trade, as well as,
auxiliaries, such as
transport, banking, etc.
Commerce provides the
necessary
link between producers
an d consumers. It
embraces all those
activities, which are
necessary for maintaining
a free flow of goods and
services. Thus, all activities
involving the removal of
hindrances in the process
of exchange are included in
commerce. The hindrances
may be in respect of

2020-21
is removed by trade, accidents, etc. Protection
thereby, making goods against these risks is
available to consumers from provided by insurance of
the possession or ownership goods. Capital required to
producers.
32 Transport undertake the above
BUSINESS

removes the hindrances of activities is provided

STUDIES by
place by moving goods from banking and financing
the place of production to institutions. Advertising
the markets for sale. makes it possible for
Storage and warehousing producers and traders to
activities remove the inform consumers about
hindrance of time by the goods and services
facilitating holding of stocks available in the market.
of goods to be sold as and Hence, commerce is said to
when required. Goods held in consist of activities of
stock, as well as, goods in removing the hindrances of
course of transport are persons, place, time, risk,
subject to a risk of loss or finance an d information
damage due to theft, fire, in the process of exchange of
goods and services.

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BUSINESS, TRADE AND 33
COMMERCE

available to the consumers

‘Make in India’ is an
or users. These days
initiative launched by the
goods are produced on a
Government of India on
large scale and it is
25 September 2014, to
difficult for producers to
encourage national, as themselves reach out to
well as multinational individual buyers for
companies to selling their products.
manufacture their Businessmen are engaged
products in India.
1. Automobile The in trading activities
3. Aviation
to
2. Automobile
4. Biotechnology Components
major objectives behind the make 6.
the goods available
Construction
7. Defence 5. Chemicals 9. Electronic
to consumers in different
‘Make in India’ initiative are Systems
Manufactu 8. Electrical markets.
12. In the absence of
Leather
job ring
creation and skill
Machinery
trade,[Link]
and Gasnot be
10. Food
enhancement 11. Information
in 25 18. Railways
Processing possible to undertake
Technology and 21. Space and
sectors
13. Mediaof and
the economy, production activities on a
Astronomy
Entertainme Business Process
which are as follows. 24. Tourism
large scale. and
nt Management
Hospitality
16. 14. Mining
Pharmaceuticals 17. Port and Shipping
19. Renewable 20. Roads and
Energy
Highways
23. Thermal power

25. Wellness

1.7.3 Trade
Trade is an essential part of
commerce. It refers to sale,
transfer or exchange of
goods. It helps in making
the goods produced

2020-21
 Trade may be classified as entrepot trade.
into two broad categories –
1.7.4 Auxiliaries to Trade
internal and external.
Internal, domestic or home Activities which are meant
trade34is concerned with the for assisting BUSINESS
trade are
buying and selling of goods known as auxiliaries
STUDIES to
and services within the trade. These activities are
geographical boundaries of a generally referred
country. This may further be
divided into wholesale and
retail trade. When goods are
purchased and sold in
comparatively smaller
quantities, for final
consumption it is

referred to as retail trade.

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

2020-21
BUSINESS, TRADE AND 35
COMMERCE

to as services because these consumers. In other words,

are in the nature of these activities facilitate
facilitating the activities movement, storage,
relating to industry and financing, risk coverage
trade. Transport, and sales promotion of
banking, in su ran ce, goods. Auxiliaries to
warehousing, and trade are brie fly
advertising are regarded discussed below:
(i) Transport and Communication:
as auxiliaries to trade, i.e.,
Production of goods
activities playing a
generally takes place in
supportive role. In fact,
particular locations. For
these activities support not
instance, tea is mainly
only trade, but also
produced in Assam;
industry and, hence, the
cotton in Gujarat and
entire business activity.
Auxiliaries are an integral Maharashtra; jute in West
part of commerce in Bengal and Odisha; sugar
particular and business in U.P., Bihar and
activity in general. These Maharashtra and so on.
activities help in But these goods are
removing various required for consumption
hindrances which arise in in different parts of the
connection with the country. The obstacle of
production and distribution place is removed by
of goods. Transport transport through road,
facilitates movement of rail or coastal shipping.
goods from one place to Transport facilitates
another. Banking provides movement of raw
financial assistance to
the manufacturer and
trader. Insurance covers
various kinds of business
risks. Warehousing creates
time utility by way of
storage facilities.
Advertising provides
information to the

2020-21
material, to the place of various types of risks.
production and the finished Factory building,
products from factories to machinery, furniture, etc.,
the place of consumption. must be protected against
Along36 with transport fire, theft and BUSINESS
other risks.
facility, there is also a need Material and goods help in
STUDIES

for communication facilities stock or in transit are

subject to the risk of loss
so that producers, traders
or dam ag e. Employees
and consumers may
are also required to be
exchange information with
protected against the risks
one another. Thus, postal
of accident and
services and telephone
occupational hazards.
facilities may also be
Insurance provides
regarded as auxiliaries to
protection in all such cases.
business activities.
(ii) 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. Banks also
undertake collection of
cheques, remittance of
funds to different places,
an d discounting of bills on
behalf of traders. In foreign
trade, commercial banks
help exporters in collecting
money from importers.
Commercial banks also help
promoters of companies to
raise capital from the public.
(iii) Insurance: Business involves

2020-21
BUSINESS, TRADE AND 37
COMMERCE

On payment of a nominal impossible for producers

premium, the amount of and traders to contact
loss or damage an d each and every customer.
compensation for injury, if Thus, for promoting sales,
any, can be recovered from information about the
the insurance company. goods and services
(iv) Warehousing: Usually, available, their features,
goods are not sold or price, etc., must reach
potential buyers. Also,
consumed immediately after
there is a need to
production. They are held
persuade potential buyers
in stock to make them
about the uses, quality,
available as and when
prices, competitive
required. Special
information about the
arrangement must be made
goods and services etc.
for the storage of goods to
Advertising helps in
prevent loss or damage.
providing information
Warehousing helps business
about available goods and
firms to overcome the
services and inducing
problem of storage and
customers to buy
facilitates the availability of
particular items.
goods when needed. Prices
are, thereby, maintained 1.8 OBJECTIVES OF BUSINESS
at a reasonable level through An objective is the
continuous supply of goods. starting point of business.
(v) Advertising: Advertising is Every business is directed
one of the most to
important methods of
promoting the sale of
products, particularly,
consumer goods, like
electronic and automobile
goods, soaps, detergents, etc.
Most of these goods are
manufactured and
supplied in the market by
numerous firms — big or
small. It is practically

2020-21
 the achievement of certain of finance for meeting
objectives. Objectives refer to expansion requirements of
all that the business people business, (iii) it indicates
want to get in return for the efficient working of
what
38 they do. It is generally
business, (iv) it can be taken
BUSINESS
believed that business activity as the society’sSTUDIES
approval of
is carried out only for profit. the utility of business, and
Business persons themselves (v) it builds th e
proclaim that their primary reputation of a business
objective is produce or enterprise.
However, too much
distribute goods or services for
emphasis on profit to the
profit. Every business is said
exclusion of other objectives
to be an attempt on the part
can be dangerous for good
of business people to get
business.
more than what has been
spent or invested, or in other
words, to earn profit which
is the excess of revenue over
cost. However, it is being
increasingly realised
nowadays that business
enterprises are part of the
society and need to fulfill
several objectives, including
social responsibility, to
survive and prosper in the
long run. Profit is found to be
a leading objective but not the
only one. Although earning
profit cannot be the only
objective of business, its
importance cannot be
ignored. Every business is an
attempt to reap more than
what has been invested, and
profit is the excess of revenue
over cost. Profit may be
regarded as an essential
objective of business for
various reasons: (i) it is a
source of income for business
persons, (ii) it can be a source

2020-21
BUSINESS, TRADE AND 39
COMMERCE

Obsessed with profit, sphere of business. For

business managers may example, sales targets
neglect all other have to be set, the amount
responsibilities towards of capital to be raised has
customers, employees, to be estimated and the
investors and society at target number of units to
large. They may even be be produced needs to be
inclined to exploit various defined. The objectives
sections of society to earn define in concrete terms
immediate profit. This may what the business is going
result in the non- to do. Objectives also
cooperation or even enable the business to
opposition from the analyse their own
affected people against performance and take
the malpractices of steps as necessary to
business enterprises. The improve their performance
enterprises might lose in future.
business and may be unable Objectives are needed in
to earn profit. That is the every area where
reason why there is hardly performance and results
any sizable business affect the survival and
enterprise who only prosperity of business.
objective is maximisation of Some of these areas are
profit. described as follows.

1.9 Multiple Objectives of Business

Objectives are needed in
every area that influences
the survival and prosperity
of business. 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

2020-21
 (i) Market standing: Market greater productivity
standing refers to the through the best use of
position of an enterprise available resources.
(iv) Physical and fin anc ial
in relation to its
resources: Any business
competitors.
40 A business BUSINESS
requires physical
STUDIES
enterprise must aim at
resources, like plants,
standing on stronger
machines, offices,
footing in terms of
etc., and financial
offe ring competitive
resources, i.e., funds to
products to it s
be able to produce and
customers and serving
supply goods and
them to their satisfaction.
services to its
(ii) Innovation: Innovation is the
introduction of new customers. The
ideas or methods in the business enterprise
way something is done or must aim at acquiring
made. There are two
kinds of innovation in
every business i.e., (i)
innovation in product or
services; and (ii)
innovation in various
skills and activitie s
needed to supply
pr oducts and se rvice s.
No business enterprise
can flourish in a
competitive world
without innovation.
Therefore, innovation
becomes an important
objective.
(iii) Productivity:
Productivity is
ascertained by
comparing the value of
output with the value of
inputs. It is used as a
measure of efficiency. In
order to ensure
continuous survival and
progress, every
enterprise must aim at

2020-21
BUSINESS, TRADE AND 41
COMMERCE

these resources attitudes determine

according to their their contribution
requirements and use towards productivity
them efficiently. and profitability of any
(v) Earning profits: One of enterprise. Therefore,
the objectives of business every enterprise must
is to earn profits on the aim at improving its
capital employed. workers’ performance.
Profitability refers to It should also try to
profit in relation to ensure a positive
capital investment. attitude on the part of
Every business must workers.
(viii) Social responsibility:
earn a reasonable
Social responsibility
profit which is so
refers to the
important for its
obligation of business
survival and growth.
firms to contribute
(vi) Manager per form anc e an d
resources for solving
development: Business
social problems and
enterprises need
work in a socially
managers to conduct
desirable manner.
and coordinate
Thus, a business enterprise
business activity.
must have multiple
Various programmes
objectives to satisfy
for motivating
different
managers need to be
implem ented.
Manag
er performance and
development,
therefore, is an
im p ort an t objective.
The enterprises must
actively work for this
purpose.
(vii) Worker pe r for m an c e and
attitude: Workers’
performance and

2020-21
individuals and groups. This conditions are likely to
is essential for its own result in gains, whereas,
survival and prosperity. unfavourable ones may
result in losses. Pure risks
1.10 Business
42
Risks involve only the possibility
BUSINESS
The term ‘business risks’ refers of loss or noSTUDIES
loss. The
to the possibility of inadequate chance of fire, theft or
profits or even losses due to strike are examples of
uncertainties or pure risks. The ir
unexpected events. For occurrence may result in loss,
example, demand for a whereas, non-occurrence
particular product may may explain absence of loss,
decline due to change in instead of gain.
tastes and preferences of
consumers or due to
increased competition
from other producers.
Lower demand results in
long sales and profits. In
another situation, the
shortage of raw materials in
the market may shoot up its
price. The firm using these
raw materials will have to
pay more for buying them. As
a result, cost of production
may increase which, in turn,
may reduce profits.
Business enterprises
constantly face two types of
risk : speculative and pure.
Speculative risks involve both
the possibility of gain, as
well as, the possibility of
loss. Speculative risks arise
due to changes in market
conditions, including
fluctuations in demand and
supply, changes in prices or
changes in fashion and
tastes of customers.
Favourable mark et

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BUSINESS, TRADE AND 43
COMMERCE

1.10.1 Nature of Business Risks goods and services

Nature of business risks can produced and sold)
and size of business
be understood in terms of
(i.e., volume of
their peculiar
production and sale)
characteristics:
(i) Business risks arise due to are the main factors
uncertainties: Uncertainty which determine the
refers to the lack of amount of risk in a
knowledge about what business. For example,
is going to happen in a business dealing in
future. Natural fashionable items has a
high degree of risk.
calamities, change in
Similarly, a large-
demand and prices,
scale business generally
changes in government
has a higher risk than
policies and prices,
what a small scale has.
improvement in
(iv) Profit is the reward for risk
technology, etc., are taking: ‘No risk, no gain’ is
some of the examples an age- old principle
of uncertainty which which applies to all
create risks for business types of business.
because the outcomes of Greater the risk
these future events are
not known.
(ii) Risk is an essential part of
every business: Every
business has some risk.
No business can avoid
risk, although the
amount of risk may
vary from business to
business. Risk can be
minimised, but cannot
be eliminated.
(iii) Degree of risk depends mainly
upon the nature and size of
business: Nature of
business (i.e., type of

2020-21
 involved in a business, of operation or business.
higher is the chance of (iv) Other causes: These are
profit. An entrepreneur unforeseen events, like
undertakes risks under political disturbances,
the
44 expectation of higher
mechanicalBUSINESS
failures,
profit. Profit is thus the such as theSTUDIES
bursting of
reward for risk taking. boiler, fluctuations in
exchange rates, etc.,
1.10.2 Cause of Business Risks
which lead to the
Business risks arise due to a possibility of business
variety of causes, which are risks.
classified as follows:
(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, man agem en t
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

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BUSINESS, TRADE AND 45
COMMERCE

Methods of Dealing with Risks

Although no business enterprise can escape the presence of

risk, there are many methods a business enterprise can
use to deal with risk situations. For instance, the
enterprise may (a) decide not to enter into too risky
transaction:
(b) take preventive measures, like firefighting devices, to
reduce risk; (c) take insurance policy to transfer risk to
1.11 Starting a Business — Basic the amount of money
Factors needed to procure them,
Starting a business the shop layout,
enterprise is similar to any purchasing and financing
other human effort in needs, and hiring of
which resources are workers for its effective
employed to achieve implementation. These
certain objectives. Successful problems become more
results in business depend complex in a big business.
largely upon the ability of However, some of the
the entrepreneurs or the basic factors, which
starters of a new business must be considered by
to anticipate problems and anybody who is to start
solve them with minimum the business are as follows.
(i) Selection of line business: The
cost. This is especially true first
of the modern business thing to be decided by an
world where competition is entrepreneur is the
very tough and risks are nature and type of
high. Some of the problems, business to
which business firms
encounter, are of basic
nature. For example, to
start a factory, plans must
be made about the
location of the business,
the possible number of
customers, the kind of
equipment required and

2020-21
be undertaken. He/she will form of ownership will
obviously like to enter that depend on such factors as
branch of industry and the line of business, capital
commerce, which has the requirements, liability of
possibility
46 of greater amount owners, BUSINESS
STUDIES
of profits. The decision will be
influenced by the customer
requirements in the market
and also the kind of
technical knowledge and
interest the entrepreneur
has for producing a
particular product.
(ii) Size of the firm: Size of the
firm or scale of its
operation is another
important decision to be
taken at the start of the
business. Some factors
favour a large size, whereas,
others tend to restrict the
scale of operation. If the
entrepreneur is confident
that the demand for the
proposed product is likely to
be good over time and he/she
can arrange the necessary
capital for business, he/she
will start the operation at a
large scale. If the market
conditions are uncertain and
risks are high, a small size
business would be better
choice.
(iii) Choice of form of ownership:
With res pect to ow n ers h ip ,
the business organisation
may take the form of a sale
pro priet ors hip,
partnership, or a joint stock
company. Each form has its
own merits and demerits.
The choice of the suitable

2020-21
BUSINESS, TRADE AND 47
COMMERCE

division of profit, legal Capital is also required for

formalities, continuity of meeting day-to-day
business, transferability of expenses. Proper financial
interest and so on. planning must be done to
(iv) Location of business enterprise: determine (a) the
An important factor to be requirement of capital, (b)
considered at the start of source from where the
the business is the place capital will be raised and
where the enterprise will (c)the best ways of utilising
the capital
be located. Any mistake in in the firm.
this regard can result in (vi) Physical facilities:
high cost of produ ction , Availability of physical
inconvenience in getting, facilities, including
right kind of production machines and eq u i p m e n t ,
inputs or serving the building an d supportive
customers in the best services is an important
pos sible way. Availability factor to be considered at
of raw materials and the start of the business.
The decision relating to
labour; power supply
this factor will depend on
an d services, like banking,
the nature and size of
transportation,
business, availability of
communication,
funds and the process of
warehousing, etc., are
production.
important factors while
making a choice of location.
(v) Financing the pro po si tion :
Financing is concerned with
providing the necessary
capital for starting, as well
as, for continuing the
proposed business.
Capital is required for
investment in fixed assets,
like land, building,
machinery and equipment
and in current assets, like
raw materials, books, debts,
stock of finished goods, etc.

2020-21
(vii) Plant layout: Once the its impact on business
requirement of physical decisions.
(x) Launching the enterprise:
facilities has been
After the decisions relating
determined, the
to the above mentioned
entrepreneur
48 should draw a BUSINESS
factors have been taken,
STUDIES
the
layout plan showing the
entrepreneur can go ahead
arrangement of these
with actual launching of
facilities. Layout means the
the enterprise which
physical arrangement of
would mean mobilising
machines and equipment
vario us resources, fulfilling
needed to manufacture a
necessary legal formalities,
product.
starting the production
(viii) Competent and committed
process and initiating the
worked force: Every enterprise
sales promotion campaign.
needs competent and
committed workforce to
perform various activities
so that physical and
financial resources are
converted into desired
outputs. Since no individual
entrepreneur can do
everything himself, he/she
must identify the
requirement of skilled and
unskilled workers and
managerial staff. Plans
should also be made about
how the employees will be
trained and motivated to
give their best
performance.
(ix) Tax planning: Tax planning
has becom e ne ce s sa ry
these days because there
are a number of tax laws in
the country and they
influence almost every aspect
of the functioning of modern
business. The founder of the
business has to consider in
advance the tax liability
under various tax laws and

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BUSINESS, TRADE AND 49
COMMERCE

EXERCISES

Short Answer Questions

1. List any five major commercial cities of ancient India?
2. What is Hundi?
3. List the major exports and imports in ancient India.
4. What were the different types of Hundi in use by
traders in ancient times?
5. What do you understand by maritime trade?
6. State the different types of economic activities.
7. Why is business considered as economic activity?
8. State the meaning of business.
9. How would you classify business activities?
10. What are the various types of industries?
11. Explain any two business activities which are auxiliaries
to trade.
12. What is the role of profit in business?
13. What is business risk? What is its nature?
Long Answer Questions
1. Discuss the development of indigenous banking
system in Indian subcontinent.
2. Define business. Describe its important characteristics.
3. Compare business with profession and employment.
4. Define Industry. Explain various types of industries giving
examples.
5. Describe the activities relating to commerce.
6. Explain any five objectives of business.
7. Explain the concept of business risk and its causes.
8. What factors are to be considered while starting a business?
Explain.
Projects/Assignments
1. Visit any business unit in your locality. Interact with
the owner to find out the steps in starting the
business. Prepare a project report of your visit.
2. Prepare a project report on the development of Trade
and Commerce between 1st and 17th AD.
3. Collect information on any five sectors of the
economy that Make in India focuses on. Find out the
amount of investment in these sectors in the past two
years. What were the possible reasons that led to an
interest of investors in these sectors? Present your
report in the following format:

2020-21
50 BUSINESS
STUDIES
Sector Investment in Investment in Possible reasons
Year I Year II for the change

2020-21