Internal Trade

Ch-10

10.1Introduction
Trade means the buying and selling of goods and services to make a profit. Humans have been
involved in trade in some way since ancient times. Today, trade is even more important as new
products are developed daily and are available worldwide. No individual or country can produce
everything it needs, so everyone focuses on producing what they do best and exchanging the extra
with others.
Trade can be divided into two types based on the location of the buyers and sellers:
1. Internal Trade: Trade that happens within a country.
2. External Trade: Trade that happens between two or more countries.
This chapter explains internal trade in detail, including types and the role of chambers of
commerce in supporting it.

10.2 Internal Trade

Internal trade refers to the buying and selling of goods and services within a country. Examples
include purchasing items from a local shop, central market, departmental store, mall, door-to-door
salesperson, or exhibition. All these are types of internal trade because the goods are bought from
within the country. There is no customs or import duty on such trade since the goods are made
locally and meant for domestic use.
Payments in internal trade are usually made using the country's legal currency or any other
accepted currency.
Internal trade can be divided into two main types:
1. Wholesale Trade: This involves buying and selling goods in large quantities, often for
resale or intermediate use. Wholesalers help distribute products, such as vegetable oil or
soap, from producers to a larger market, reaching many consumers across the country.
2. Retail Trade: This involves the sale of goods in smaller quantities, usually directly to the
final consumers. Retailers are traders who sell goods to people for personal use.
Both wholesalers and retailers play important roles as intermediaries, helping to move goods from
producers to consumers. Internal trade ensures that goods are distributed fairly, quickly, and at a
reasonable price within a country.
10.3 Wholesale Trade
Wholesale trade involves the buying and selling of goods in large quantities, usually for resale or
intermediate use. Wholesalers sell to retailers, merchants, and other commercial or industrial
users but not to the final consumers. They act as a key link between manufacturers and retailers,
helping products reach a larger customer base through retailers. Wholesalers take on the risks of
buying and selling goods in bulk, which allows producers to focus on production.
Key functions of wholesalers:
 Purchasing in bulk and selling in smaller quantities to retailers or industrial users.
 Grading, packing, and storage of products.
 Transportation and promotion of goods.
 Market research and information collection.
 Providing credit to retailers and relieving them of maintaining large stock.
Services of Wholesalers
Wholesalers provide valuable services to both manufacturers and retailers by helping with
distribution, stock management, and marketing. Here are the services they provide:

10.3.1 Services to Manufacturers

 Facilitating large-scale production: By collecting small orders from many retailers,
wholesalers help manufacturers produce goods on a large scale, benefiting from economies
of scale.
 Bearing risk: Wholesalers take on risks like price changes, theft, spoilage, and storage
problems, relieving manufacturers of these burdens.
 Financial assistance: Wholesalers often pay for goods upfront or provide money to
manufacturers for bulk orders, helping with cash flow.
 Expert advice: Wholesalers, with their knowledge of the market, provide manufacturers
with valuable insights on customer preferences, market trends, and competitors.
 Marketing support: By distributing goods to retailers, wholesalers reduce the burden on
manufacturers, allowing them to focus on production.
 Storage: Wholesalers store goods, ensuring a continuous supply when demand increases.

10.3.2 Services to Retailers

 Availability of goods: Wholesalers make products from different manufacturers available to
retailers, saving them the trouble of dealing with multiple suppliers.
 Marketing support: Wholesalers support retailers with advertising and sales promotions to
boost demand for products.
 Grant of credit: Wholesalers often offer credit to regular retailers, making it easier for
them to manage their working capital.
 Specialized knowledge: Wholesalers share their expertise on products, including their
quality, pricing, and proper retailing techniques.
 Risk sharing: By buying in bulk and selling in smaller quantities, wholesalers help retailers
avoid the risks of overstocking, price fluctuations, and unsold goods.
10.4 Retail Trade
Retailers connect producers or wholesalers to consumers by buying goods in bulk and selling
them in smaller quantities. They perform various functions, including purchasing, storing, selling,
bearing risks, grading products, gathering market insights, offering credit, and promoting sales.
Retailing can occur in stores, through personal selling, or other methods, as long as products are
sold directly to consumers for personal use.

Services of Retailers
Retailers provide essential services to consumers, wholesalers, and manufacturers in the
distribution process. The key services offered are as follows:
10.4.1 Services to Manufacturers and Wholesalers
 Help in Distribution of Goods: Retailers assist in the distribution of goods by making them
accessible to consumers, often in distant areas.
 Personal Selling: Retailers engage in personal selling efforts, helping producers complete
the sale of goods.
 Enabling Large-Scale Operations: Retailers relieve manufacturers and wholesalers from
the need to engage in individual sales, allowing them to operate on a larger scale.
 Collecting Market Information: Retailers gather valuable market information about
consumer preferences, which helps in making informed marketing decisions.
 Help in Promotion: Retailers participate in promotional activities like advertising, coupons,
sales contests, and others, helping to boost sales.
10.4.2 Services to Consumers
 Regular Availability of Products: Retailers maintain a consistent stock of various products,
ensuring availability when consumers need them.
 New Products Information: Retailers provide valuable information about new products,
their features, and arrivals, helping customers make informed purchasing decisions.
 Convenience in Buying: Retailers make shopping easier by offering goods in small
quantities and often being located close to residential areas with extended working hours.
Additional Services
 Wide Selection: Retailers offer a variety of products, providing customers with many
options to choose from.
 After-Sales Services: Retailers often provide home delivery, spare parts, and customer
support, ensuring a positive experience and encouraging repeat purchases.
 Credit Facilities: Some retailers offer credit to regular customers, allowing them to
increase consumption and improve their standard of living.

Terms of Trade
 Cash on Delivery (COD): A payment method where payment for goods or services is made
at the time of delivery. If the buyer fails to pay, the goods are returned to the seller.
 Free on Board (FoB) or Free on Rail (FOR): A contract where the seller is responsible for
all expenses up to the point of delivery to a carrier (e.g., ship, rail, or lorry).
 Cost, Insurance, and Freight (CFF): A pricing method that includes the cost of goods as
well as insurance and freight charges up to the destination port.
 Errors and Omissions Excepted (E&OE): A trade term used in documents to indicate that
mistakes or overlooked items should be considered.
10.5 Types of Retailing Trade
Retailing in India can be classified into various types based on different factors such as size of
business, ownership, merchandise, and whether they have a fixed location.

10.5.1. Itinerant Retailers

Itinerant retailers do not have a fixed place of business and move from place to place. Common
types include:
 Peddlers and Hawkers: Small traders selling low-cost goods like fruits, vegetables, and
toys from carts or bicycles.
 Market Traders: Operate on fixed days and sell specific items like fabrics, toys, or
groceries.
 Street Traders: Found in high-traffic areas like railway stations, selling stationery, food, or
clothing.
 Cheap Jacks: Retailers who change their location based on demand, offering a variety of
products and services.
10.5.2. Fixed Shop Retailers
These retailers operate from a permanent location, offering a variety of goods or services. They
tend to have larger resources than itinerant retailers and offer services like home delivery, credit
facilities, and product guarantees.
Types of Fixed Shop Retailers:
 Small Retailers:
o General Stores: Sell daily use items such as groceries, toiletries, and snacks, and
provide convenience for local residents.
o Specialty Shops: Specialize in a specific product line, like clothing, toys, or
electronics.
o Street Stall Holders: Small vendors at busy locations, selling low-cost items like toys
or snacks.
o Second-hand Goods Shops: Sell used goods like books, furniture, and clothing at
lower prices.
 Large Retailers:
o Department Stores: Large stores with multiple departments offering a wide range of
products. Examples in India include Akberally and Spencers.
 Advantages: Attract large numbers of customers, provide convenience by
offering various products in one place, and offer services like home delivery,
credit, and more. They benefit from large-scale operations and can promote
sales through extensive advertising.
In summary, retailing in India is diverse, ranging from small itinerant vendors to large fixed
establishments like department stores, each serving different customer needs and providing
varied services.
10.5.3Chain Stores or Multiple Shops:
These are networks of retail shops, often owned and operated by manufacturers or intermediaries.
They deal in standardized and branded consumer products that have rapid sales turnover.
Advantages:
 Economies of scale: Lower costs due to large-scale operations.
 Elimination of middlemen: Direct distribution, reducing costs and increasing efficiency.
 No bad debts: Since they deal with cash or pre-paid transactions.
 Transfer of goods: Easy movement of goods between stores.
 Diffusion of risk: Risk is spread across multiple locations.
 Low cost: Due to large scale and efficiency.
 Flexibility: Ability to adapt to market demands quickly.
Limitations:
 Limited selection of goods: Focuses on standardized products.
 Lack of initiative: Employees may have less motivation or innovation.
 Lack of personal touch: Limited personal interaction with customers.
 Difficulty in changing demand: Hard to adapt quickly to changing consumer preferences.

Difference between Departmental Stores and Multiple Shops:

1. Location: Departmental stores are usually located in prime commercial areas, while
multiple shops may be in varied locations.
2. Range of products: Departmental stores offer a wide variety of products across different
categories, whereas multiple shops focus on a smaller, standardized selection.
3. Services offered: Departmental stores may offer more comprehensive customer service,
including after-sales support, while multiple shops typically offer minimal service.
4. Pricing: Departmental stores may offer a range of price points, while multiple shops
generally provide standardized pricing.
5. Class of customers: Departmental stores target a broader demographic, while multiple
shops cater to more mass-market customers.
6. Credit facilities: Departmental stores may offer credit, while multiple shops usually deal in
cash transactions.
7. Flexibility: Departmental stores offer more flexibility in terms of product range and
services.

10.5.4Mail Order Houses:

Mail order houses are retail outlets that sell products through mail orders, without direct personal
contact with buyers.
Advantages:
 Limited capital requirements: Lower startup and operational costs.
 Elimination of middlemen: Direct transactions with customers.
 Absence of bad debts: Payment is usually made upfront.
 Wide reach: Can cater to customers across large geographic areas.
 Convenience: Customers can place orders from home.
Limitations:
 Lack of personal contact: No face-to-face interaction, which can affect trust and customer
satisfaction.
 High promotion costs: Significant expenditure required on advertising to reach potential
customers.
 No after-sales services: Customers may not get personalized support after the purchase.
 No credit facilities: Payments are often required upfront, making it inaccessible to some
buyers.
 Delayed delivery: Reliant on postal services, which may cause delays.
 Possibility of abuse: Potential for fraud or scam operations.
 High dependence on postal services: Any disruption in postal services can affect the
business.

10.5.5Consumer Cooperative Stores:

Consumer cooperative stores are owned, managed, and controlled by consumers, with the goal of
reducing middlemen and providing services directly to members.
Advantages:
 Ease in formation: Relatively simple to start.
 Limited liability: Members are only liable for their investments.
 Democratic management: Members have a say in the operation.
 Lower prices: By cutting out intermediaries, prices are generally lower.
 Cash sales: Minimizes the risk of bad debts.
 Convenient location: Often strategically located to benefit members.
Limitations:
 Lack of initiative: May suffer from low motivation or innovation due to the cooperative
structure.
 Shortage of funds: Limited capital for expansion or growth.
 Lack of patronage: Success depends on consumer support, which may be inconsistent.
 Lack of business training: Members may lack experience in running a business effectively.

10.5.6Supermarkets:
A supermarket is a large retail business selling a wide variety of consumer goods at lower
margins, with an emphasis on low-cost operations, variety, and merchandising appeal.
Advantages:
 One roof, low cost: A wide variety of products under one roof with lower operational costs.
 Central location: Conveniently located for customers.
 Wide selection: Offers a vast assortment of products.
 No bad debts: Most transactions are in cash or prepaid.
 Benefits of large scale: Economies of scale allow for competitive pricing.
Limitations:
 No credit: No flexibility for deferred payments.
No personal attention: Lack of one-on-one customer service.
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Mishandling of goods: Higher turnover of products may lead to damage or spoilage.

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High overhead expenses: Operational costs, including rent and staff wages, can be high.


Huge capital requirements: Initial investment can be significant due to the scale and


infrastructure needed.
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10.5.7Vending Machines:
Vending machines are automated self-service machines that dispense pre-packaged, low-priced
products with high turnover. These products are typically uniform in size and weight, making
them easy to stock and dispense. Common items sold through vending machines include snacks,
drinks, candies, and sometimes toiletries.
Key Features:
1. Convenience: Vending machines are available 24/7, providing quick and easy access to
products without the need for human interaction.
2. Low-Cost Items: They generally sell inexpensive items that are in high demand, ensuring
fast turnover and frequent restocking.
3. Automated Operation: Users can purchase items by inserting money or using digital
payment methods, and the machine automatically dispenses the product.
Advantages:
 Accessibility: Available in various locations like offices, schools, and transit stations.
 Minimal Overhead: Requires no staff, reducing operating costs.
 Efficient: Quick and easy for customers to use.
Limitations:
 Limited Product Range: Vending machines offer fewer products than a traditional store.
 Technical Issues: Malfunctions can cause inconvenience.
 No Customer Service: There's no assistance available for customers.
In summary, vending machines are a convenient, low-cost way to provide products in high-traffic
areas, although they come with limitations in product variety and potential technical issues.

Goods and Services Tax (GST)

India introduced GST on July 1, 2017, implementing "One Nation, One Tax" to unify markets and
simplify goods movement. This reform streamlined taxation for all stakeholders.
As a revolutionary tax reform, GST ensures government accountability and supports social
development through effective revenue collection.
What is GST?
GST is a single, destination-based tax replacing multiple indirect taxes at both Central and State
levels. It creates a unified market, improves compliance, and reduces tax burdens by eliminating
17 indirect taxes and 23 cesses.
GST consists of:
 Central GST (CGST): Central Government tax
 State GST (SGST): State Government tax
 Integrated GST (IGST): For inter-state transactions
The tax applies at each value chain stage, with input tax credits preventing cascading effects and
reducing consumer prices.

Some Facts About GST

1. Uniform Tax Across India: Creates uniform pricing nationwide
2. Destination Tax: Collected at point of consumption
3. Input Tax Credit: Reduces overall tax burden through offsetting
4. Anti-Profiteering Measures: Ensures cost benefits reach consumers

Benefits and Empowerment for Citizens

 Reduction in Tax Burden: Lower overall taxes
Transparency: Clearer tax system
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Harmonized Market: Unified national market

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Increased Disposable Income: Lower prices on essential goods

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More Choices: Competitive product options

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Economic Growth: Enhanced business activity

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Key Features of GST

1. Scope: Covers all supply of goods/services
2. Destination-Based: Tax at consumption point
3. Import Tax: IGST plus customs duties
4. Tax Slabs: 5%, 12%, 18%, 28%
5. Exports and SEZs: Zero-rated
6. Payment Options: Multiple digital methods

GST Council
Oversees GST implementation and rules.
 Chairperson: Finance Minister of India
 Vice-Chairperson: State Minister representative
 Members: State Finance Ministers
 Quorum: 50% members
 Voting: 75% majority needed
 Makes recommendations on GST matters
In conclusion, GST streamlines taxation, benefiting India's entire business ecosystem.

10.6 Role of Commerce and Industry Associations in Promoting Internal Trade

Commerce and industry associations, such as ASSOCHAM, CII, and FICCI, protect and promote
the interests of businesses. These associations play a crucial role in strengthening internal trade
and driving economic growth. They engage with the government to reduce trade barriers,
enhance interstate movement of goods, improve infrastructure, and streamline taxation systems.
Key roles of these associations include:
 Interstate Movement of Goods: The associations help with policies related to vehicle
registration, transportation, and infrastructure development (e.g., Golden Quadrilateral).
 Local Levies and Taxes: They advocate for fair taxation systems like octroi and ensure
smooth transportation.
 Harmonizing Sales Tax and VAT: They work with the government to streamline tax
structures across states, replacing sales tax with VAT to avoid cascading effects.
 Marketing Agro Products: Associations help improve the marketing and distribution of
agricultural products.
 Protection of Consumer Interests: They work on enforcing laws related to weights,
measures, and brand protection.
 Excise Duty: The associations ensure that excise duties are streamlined and do not hinder
trade.
 Infrastructure Development: They collaborate with the government to improve essential
infrastructure like roads, ports, and railways.
 Labor Legislation: Associations work with the government to create flexible labor laws,
facilitating industry growth and employment.


Internal Trade: Internal trade involves buying and selling goods within a country, excluding
customs or import duties. It is divided into two main categories: wholesale trade and retail trade.
 Wholesale Trade: The purchase and sale of goods in large quantities for resale or further
use. Wholesalers act as intermediaries between manufacturers and retailers, offering
services such as risk-bearing, storage, and financial assistance.
 Retail Trade: Involves selling goods directly to consumers. Retailers provide services like
product availability, after-sales services, and credit facilities. Retail trade can be further
classified into itinerant (e.g., peddlers, market traders) and fixed shop retailers (e.g.,
general stores, specialty shops, departmental stores).
Types of Retail Trade:
Itinerant Retailers: Small-scale traders who move from place to place. Examples include
peddlers, market traders, and street vendors.


Fixed Shop Retailers: These retailers operate from a fixed location and can be small (e.g.,
general stores, second-hand goods shops) or large (e.g., departmental stores, chain


stores).

Departmental Stores: Large establishments offering a variety of products under one roof. They
offer advantages like economies of scale and convenience but face limitations such as high
operating costs.
Chain Stores: Retail shops operating as part of a network, offering standard products. They
benefit from economies of scale but have limited product variety.
In summary, commerce and industry associations are instrumental in shaping policies that foster
smooth internal trade, while wholesalers and retailers play key roles in the distribution of goods.