Chapter 1 - Business, Trade and Commerce

11 June 2025 20:32

1. Introduction
Business is a major economic activity which is concerned with the production and sale of goods and services to
people.
→ It starts with production and ends with consumption.
→ Business is a wider term and includes industry, trade and commerce.

1.1 Role of Business in Development of Economy

Best example of it is the use of age old Hundi and Chitties (in southern regions).
As an instrument of exchange it involved a contract which-
• warrant the payment of money, the promise or order which is unconditional,
• capable of change through transfer by valid negotiation.

Hundi literally means "to collect" and was written in vernacular language and facilitated the safe transfer of
money between parties and helped promotion of trading activities.

Hundi as practised by Indian Merchant Communities

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 costs, and the Drawer
carries no liability.

With the active contribution of Indian traders and other merchant communities, the Indian sub-continent was

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With the active contribution of Indian traders and other merchant communities, the Indian sub-continent was
popularly called "Swaran Bhoomi and Swaran Deep" in the writings of many travellers, such as Megasthenes,
Faxian (FaHein), Xuanzang (Huen Tsang), Al Beruni, IbnBatuta, Frenchman Francois and others.

Major Trade Centres in ancient times

1. Pataliputra: Known as Patna now. Major centre for export of stones.

2. Peshawar: Exporting centre for wool and importing of horses.
3. Taxila: Major centre of land route between India and Central Asia. City of financial and commercial banks.
Buddhist centre of learning. Famous for Taxila University.
4. Indraprastha: Commercial junction on the royal road where routes leading to east, west, south and north
converged.
5. Mathura: Emporium of trade and people subsisted on commerce. Routes from South India touched
Mathura and Broach.
6. Varanasi: Laid both on the Gangetic route and one the highway that linked North with the East. Major
centre of textile industry. Famous for gold silk cloth and sandalwood workmanship. Links with Taxila and
Bharuch.
7. Mithila: Traders crossed seas by boats, through the Bay of Bengal to the South China Sea and traded at ports
on islands of Java, Sumatra and Borneo. Trading colonies in Yunnan, South China.
8. Ujjain: Export of Agate, Carnelian, muslin and mallow cloth. Land route trade connections with Taxila and
Peshawar.
9. Surat: Emporium of western trade during the Mughal period. Textiles were famous for their gold borders
(zari). Surat hundi was honoured in markets of Egypt and Iran.
10. Kanchi: Known as Kanchipuram now. Chinese came to purchase pearls, glass and rare stones and in return
sold gold and silk.
11. Madura: Capital of Pandayas who controlled the pearl fisheries of the Gulf of Mannar. It attracted Romans
to carry out overseas trade.
12. Broach: Greatest seat of commerce in Western India. Situated on the banks of river Narmada and linked
with all important marts by roadways.
13. Kaveripatta: Known as Kaveripattam. Provided loading, unloading and strong facilities of merchandise.
Foreign traders had their headquarters here. Convenient place for trade with Malaysia, Indonesia, China and
the Far East. Centre of trade for perfumes, cosmetic, scents, silk, wool, cotton, corals, pearls, gold, precious
stones and ship building.
14. Tamralipti: One of the greatest ports connected both by sea and land with the West and Far East. Linked by
road to Banaras and Taxila.

A three pronged approach of stabilisation, restructuring, globalisation of Indian economy was adopted to address
the changes in economic and business scenario and its integration with global economy.
→ Major policy changes were effected since 1991 w.r.t., fiscal, monetary, trade, industry, agriculture,
infrastructure, foreign exchange and foreign investment since 1991.

• The high growth sectors have been identified, which are likely to grow at a rapid pace and the recent
initiatives of the Government of India such as 'Make in India', 'Skill India', 'Digital India' is expected to help
the economy in terms of exports and imports with "steady and sustainable trade balance".

2. Concept of Business

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.

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 2.1. Characteristics of Business Activities

i. An economic activity: As it is undertaken with the objective of earning money or livelihood. This activity
can be undertaken either on small and individual level or on large scale.
ii. Production or procurement of goods and services: The goods must be either produced or procured
by business enterprises. Every business enterprise either manufactures the goods it deals with or acquires it
from producers to be further sold to consumers.
iii. Sale or exchange of goods and services: Be it directly or indirectly, business involves transfer or
exchange of goods and services for value.
iv. Dealings in goods and services on a regular basis: Business involves dealings in goods and services on
a regular basis.
v. Profit earning: No business can survive for long without profit. Businessmen make all possible efforts to
maximise profits.
vi. Uncertainty of return: It refers to lack of knowledge relating to the amount of money that the business is
going to earn in a given period.
vii. Element of risk: Risk is the uncertainty associated with an exposure to loss.

2.2. Comparison of Business, Profession and Employment

Basic Business Profession Employment

1. Mode of Entrepreneur's decision and Member of professional Service agreement and
establishment other legal formalities body and certificate of appointment letter
practice
2. Nature of work Production of goods and Rendering of professional Performing work as per
services for public services service contract or rules
3. Qualification No minimum qualification Professional qualification As per the nature of the job
and training
4. Reward Profit Professional fee Salary or wages
5. Capital investment Depends on the size and Limited capital investment No capital investment
nature of business
6. Risk Risk is present Limited risk Little or no risk
7. Transfer of interest Possible with some Not possible Not possible
formalities
8. Code of conduct No code of conduct is Professional code of Terms and conditions laid
prescribed conduct down by the employer
9. Example Shop, factory Legal, medical, CA Jobs in banks, companies,
etc.

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3. Classification of Business Activities

1. Industry: Linked with Production or Processing of goods and services.

i. Primary Industry: Activities which are concerned with the extraction and production of natural resources
and reproduction of living organisms.

• Extractive industry: Extract or draw products from natural sources.

• Genetic industry: Engaged in breeding plants and animals for their use in further reproduction.
ii. Secondary Industry: Process the raw materials extracted at the primary stage to produce goods for final
consumption or for further processing by other industrial units.

• Manufacturing industry: Engaged in producing goods through processing of raw materials and, thus,
creating form utilities. It is again divided into four categories:

○ Analytical: Analyses and separates different elements from the same materials.
○ Synthetical: Combines various ingredients into a new product.
○ Processing: Successive stages for manufacturing finished products.
○ Assembling: Assembles different component parts to make a new product.

• Construction industry :Involved in the construction of buildings, dams, bridges, roads as well as tunnels and
canals.

iii. Tertiary Industry: Concerned with providing support services to primary and secondary industries as well
as activities relating to trade.

2. Commerce: Linked with Exchange of goods and services.

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 i. Trade: It refers to buying and selling of goods and services with the aim of earning profit.

ii. Auxiliaries of Trade: It refers to those activities which facilitate the purchase and sale of goods, i.e., which
are meant for assisting trade.

• Transport and Communication: It involves all those activities which are undertaken for the movement of
goods from one place to another.
• Banking and Finance: It includes all those activities which are concerned with providing finance for various
business activities.
• Insurance: It involves all those activities which are concerned with providing protection from various kinds
of risks.
• Warehousing: It is concerned with storing goods in order to facilitate their supply to the market at the right
time.
• Advertising: It involves all the activities which are concerned with providing information about the product
to the consumers.

4. Objectives of Business

i. Market standing: It helps in forming a distinct identity in the market and is referred to as market standing
in relation to its competitors.
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 in relation to its competitors.
ii. Innovation: It is defined as an introduction of new ideas or methods in the way something is done or made.
Any modification in the existing product to enhance its operation is also known as innovation.
iii. Productivity: It is ascertained by comparing the value of output with the value of inputs.
iv. Physical and Financial Resources: The business enterprise must aim at acquiring these resources
according to their requirements and use them efficiently.
v. Earning Profits: Every business must earn a reasonable profit which is so important for its survival and
growth.
vi. Social Responsibility: It refers to obligation of business firms to contribute resources for solving social
problems.

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

5.1. Nature of Business Risks

i. Risk is an essential part of every business: Risk can be minimised, but cannot be eliminated.
ii. Business risks arise due to uncertainties: Uncertainty refers to the lack of knowledge about what is
going to happen in future.
iii. Degree of risk depends mainly upon the nature and size of business: Nature and size of business
are the main factors which determine the risk of that business.
iv. Profit is the reward for risk taking: 'No risk, no gain' is an age-old principle which applies to all types of
business.

5.2. Causes of Business Risks

i. Natural causes: Flood, earthquake, lightning, heavy rains, famine, etc.

ii. Human causes: Dishonesty, carelessness or negligence of employees, stoppage of work due to power
failure, strikes, riots, management inefficiency, etc.
iii. Economic causes: 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 tasks, etc.
iv. Other causes: Political disturbances, mechanical failures like bursting of boiler, fluctuations in exchange
rates, etc.

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6. Starting a Business- Basic Factors

• The process of setting up one's own business is called entrepreneurship.

• The person who set-up his business is called an entrepreneur.
• The output of the process, that is, the business unit is called a business enterprise.

The factors are:

i. Selection of type of business: The first thing to be decided by an entrepreneur is the nature and type of
business to be undertaken (especially between industry and commerce).
ii. Size of business: Size of the firm or scale of its operation is another important decision to be taken at the
start of the business.
iii. Location of business enterprise: Availability of raw material and labour; power supply and services, like
banking, transport, communication, warehousing, etc., are important factors while selecting the location.
iv. Financing the proposition: Financing is concerned with providing the necessary capital for starting, as
well as, for continuing the proposed business.
v. Physical facilities: Including machines and equipment, building and supportive services.
vi. Competent and committed worked force: Every enterprise needs competent and committed workforce
to perform various activities so that physical and financial resources are converted into desired outputs.
vii. Tax planning: It has become necessary these days because there are a number of tax laws in the country
and they influence most every aspect of the functioning of the modern business.
viii. Launching the enterprise: After decision have been taken, the entrepreneur can go ahead with the actual
launching of the enterprise which would mean mobilizing various resources, fulfilling necessary legal
formalities, starting the production process and initiating the sales promotion campaign.

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