CLASS XI

INTERNAL TRADE
INTERNAL TRADE
OVERVIEW

 Meaning and types of internal trade

 Appreciate the services of wholesalers and
retailers
 Types of retail trade – itinerant and small
scale fixed shops retailers
 Large scale retailers – departmental stores
and chain store(Meaning and features and
difference) mail order houses.
 GST – Meaning and features.
Buying and selling of goods and services within the
boundaries of a nation are referred to as internal trade

Types of internal trade

 Services of wholesalers to

MANUFACTUR
ERS
SERVICES OF WHOLESALER
TO MANUFACTURER

(i) Facilitating large scale production: Wholesalers collect small

orders from a number of retailers and pass on the pool of such
orders to the manufacturers and make purchases in bulk
quantities. This enables the producers to undertake production
on a large scale and take advantage of the economies of scale.
(ii) Bearing risk: The wholesale merchants deal in goods in their
own name, take delivery of the goods and keep the goods
purchased in large lots in their warehouses. In the process, they
bear variety of risks such as the risk of fall in prices, theft,
pilferage, spoilage, fire, etc. To that extent, they relieve the
manufacturers from bearing these risks.
(iii) Financial assistance: The wholesalers provide financial
assistance to the manufacturers in the sense that they generally
make cash payment for the goods purchased by them. To that
extent, the manufacturers need not block their capital in the
stocks. Sometimes they also advance money to the producers for
bulk orders placed by them.
SERVICES OF WHOLESALER
TO MANUFACTURER

(iv) Expert advice: As the wholesalers are in direct contact with the
retailers, they are in a position to advice the manufacturers about
various aspects including customer’s tastes and preferences, market
conditions, competitive activities and the features preferred by the
buyers. They serve as an important source of market information on
these and related aspects.
(v) Help in marketing function: The wholesalers take care of the
distribution of goods to a number of retailers who, in turn, sell these
goods to a large number of customers spread over a large geographical
area. This relieves the manufacturers from many of the marketing
activities and enable them to concentrate on the production activity.
(vi) Facilitate production continuity: The wholesalers facilitate
continuity of production activity throughout the year by purchasing the
goods as and when these are produced and storing them till the time
these are demanded by retailers or consumers in the market.
(vii) Storage: Wholesalers take delivery of goods when these are
produced in factory and keep them in their godowns/warehouses. This
reduces the burden of manufacturers of providing for storage facilities
for the finished products. They thus provide time utility
 SERVICES OF WHOLESALER
TO RETAILER

(i)Availability of goods: Retailers have to maintain adequate

stock of varied commodities so that they can offer variety to
their customers. The wholesalers make the products of various
manufacturers readily available to the retailers. This relieves
the retailers of the work of collecting goods from several
producers and keeping big inventory of the same.
(ii) Marketing support: The wholesalers perform various
marketing functions and provide support to the retailers. They
undertake advertising and other sales promotional activities to
induce customers to purchase the goods. The retailers are
benefitted as it helps them in increasing the demand for various
new products.
(iii) Grant of credit: The wholesalers generally extend credit
facilities to their regular customers. This enables the retailers to
manage their business with relatively small amount of working
capital.
SERVICES OF WHOLESALER
TO RETAILER

(iv) Specialised knowledge: The wholesalers specialise in

one line of products and know the pulse of the market.
They pass on the benefit of their specialised knowledge to
the retailers. They inform the retailers about the new
products, their uses, quality, prices, etc. They may also
advise them on the decor of the retail outlet, allocation of
shelf space and demonstration of certain products.
(v) Risk sharing: The wholesalers purchase in bulk and
sell in relatively small quantities to the retailers. Being
able to purchase merchandise in smaller quantities,
retailers are in a position to avoid the risk of storage,
pilferage, obsolescence, reduction in prices and demand
fluctuations in respect of larger quantites of goods that
they would have to purchase in case the services of
wholesalers are not available.
 Services of retailers to

Wholesalers
and
manufacturer
s
 SERVICES OF RETAILER TO
MANUFACTURER AND WHOLESALER

(i) Help in distribution of goods: A retailer’s most important

service to the wholesalers and manufacturers is to provide
help in the distribution of their products by making these
available to the final consumers, who may be scattered over
a large geographic area. They thus provide place utility.
(ii) Personal selling: In the process of sale of most consumer
goods, some amount of personal selling effort is necessary.
By undertaking personal selling efforts, the retailers relieve
the producers of this activity and greatly help them in the
process of actualising the sale of the products.
iii) Enabling large-scale operations: On account of retailer’s
services, the manufacturers and wholesalers are freed from
the trouble of making individual sales to consumers in small
quantities. This enables them to operate on, at relatively
large scale, and thereby fully concentrate on their other
activities
SERVICES OF RETAILER TO
MANUFACTURER AND WHOLESALER

(iv) Collecting market information: As retailers

remain in direct and constant touch with the buyers,
they serve as an important source of collecting market
information about the tastes, preferences and
attitudes of customers. Such information is considered
very useful in taking important marketing decisions in
an organisation. (v) Help in promotion: From time-
to-time, manufacturers and distributors have to carry
on various promotional activities in order to increase
the sale of their products. For example, they have to
advertise their products and offer short-term
incentives in the form of coupons, free gifts, sales
contests, and so on. Retailers participate in these
activities in various ways and, thereby, help in
promoting the sale of the products.
SERVICES OF RETAILER TO
CONSUMERS

(i) Regular availability of products: The most

important service of a retailer to consumers is to
maintain regular availability of various products
produced by different manufacturers. This enables
the buyers to buy products as and when needed.
(ii) New products information: By arranging for
effective display of products and through their
personal selling efforts, retailers provide
important information about the arrival, special
features, etc., of new products to the customers.
This serves as an important factor in the buying
decision making process of the purchase of such
goods
SERVICES OF RETAILER TO
CONSUMERS

(iii) Convenience in buying: Retailers generally

buy goods in large quantities and sell these in
small quantities, according to the requirements
of their customers. Also, they are normally
situated very near to the residential areas and
remain open for long hours. This offers great
convenience to the customers in buying
products of their requirements. (iv) Wide
selection: Retailers generally keep stock of a
variety of products of different manufacturers.
This enables the consumers to make their
choice out of a wide selection of goods.
SERVICES OF RETAILER TO
CONSUMERS

(v) After-sales services: Retailers provide

important after-sales services in the form
of home delivery, supply of spare parts
and attending to customers. This becomes
an important factor in the buyers’ decision
for repeat purchase of the products.
(vi) Provide credit facilities: The retailers
sometimes provide credit facilities to their
regular buyers. This enables the latter to
increase their level of consumption and,
thereby, their standard of living.
Types of Retailing Trade

Types of RETAILERS

Fixed Shop Retailers

Retail shops who
maintain permanent
establishment to sell
their merchandise
SMALL SCALE
1. General LARGE SCALE
Stores 1. Departmen
2. Speciality tal stores
shops 2. Chain
3. Street stall Stores
holders 3. Mail order
4. Second hand houses
goods shop
 Itinerant Retailers -
cHARACTERISTICS

(a) They are small traders operating with limited

resources.
(b) They normally deal in consumer products of daily
use such as toiletry products, fruits and
vegetables, and so on.
(c) The emphasis of such traders is on providing
greater customer service by making the products
available at the very doorstep of the customers.
(d) As they do not have any fixed business
establishment to operate from, these retailers
have to keep their limited inventory of
merchandise either at home or at some other
place.
Itinerant Retailers-
(i) Peddlers and hawkers

They are small producers or petty traders who carry the products on
a bicycle, a hand cart, a cycle-rickshaw or on their heads, and
move from place to place to sell their merchandise at the doorstep of
the customers.
They generally deal in non-standardised and low-value products
such as toys, vegetables and fruits, fabrics, carpets, snacks and ice
creams, etc.
They are also found in streets of residential areas, places of
exhibitions or meals, and outside schools, during a lunch break.
The main advantage of this form of retailing is the provision of
convenient service to the consumers.
However, one should be careful in dealing with them, as the products
they deal in are not always reliable in terms of quality and price .
Itinerant Retailers-
(ii) Market traders

Market traders are the small retailers who open

their shops at different places on fixed days or
dates, such as every Saturday or alternate
Saturdays, and so on.
These traders may be dealing in one particular line of
merchandise, say fabrics or ready-made garments,
toys, or crockery, or alternatively, they may be
general merchants.
They are mainly catering to lower-income group of
customers and deal in low-priced consumer items of
daily use.
Itinerant Retailers-
(iii) Street traders (pavement
vendors)
Street traders are the small retailers who are
commonly found at places where huge floating
population gathers, for example, near railway
stations and bus stands, and sell consumer items
of common use, such as stationery items, eatables,
ready-made garments, newspapers and magazines.
They are different from market traders in the sense
that they do not change their place of business so
frequently.
Itinerant Retailers-
(iv) Cheap jacks:
Cheap jacks are petty retailers who have
independent shops of a temporary nature
in a business locality. They keep on
changing their business from one locality to
another, depending upon the potentiality of
the area. However, the change of place is not
as frequent as in the case of hawkers or
market traders. They deal in consumer items
as well as services such as repair of watches,
shoes, buckets etc
 Fixed Shop Retailers
These are retail shops who maintain permanent establishment to
sell their merchandise.
Characteristics (a) Compared with the itinerant traders,
normally they have greater resources and operate on a
relatively large scale. However, there are different size groups
of fixed shop retailers, varying from very small to very large.
(b) These retailers may be dealing in different products,
including consumer durables as well as nondurables.
(c) This category of retailers has greater credibility in the minds
of customers, and they are in a position to provide greater
services to the customers such as home delivery, guarantees,
repairs, credit facilities, availability of spares, etc.
 Fixed Shop Small Retailers
General stores

:
(i) General stores are most commonly found in a local market and
residential areas. As the name indicates, these shops carry stock of
a variety of products required to satisfy the day-to-day needs of
the consumers residing in nearby localities.
(ii) Such stores remain open for long hours at convenient timings and
often provide credit facilities to some of their regular customers.
(iii) The biggest advantage of such stores is in terms of convenience to
the customers in buying products of daily use such as grocery
items, soft drinks, toiletry products, stationery and confectionery.
(iv) As most of their customers are residents of the same locality, an
important factor contributing to their success is the image of the
owner and the rapport he has established with them.
 Fixed Shop small Retailers
(ii) Speciality shops

Instead of selling a variety of products of different types,

these retail stores specialise in the sale of a specific
line of products.
For example, shops selling children’s garments, men’s
wear, ladies shoes, toys and gifts, school uniforms,
college books or consumer electronic goods, etc.
The speciality shops are generally located in a central
place where a large number of customers can be
attracted, and they provide a wide choice to the
customers in the selection of goods.
 Fixed Shop small Retailers
Street stall holders

These small vendors are commonly found at street

crossings or other places where flow of traffic is heavy.
They attract floating customers and deal mainly in goods
of cheap variety like hosiery products, toys, cigarettes,
soft drinks, etc.
They get their supplies from local suppliers as well as
wholesalers. The total area covered by a stall is very
limited and, therefore, they handle goods on a very small
scale.
Their main advantage is in providing convenient service to
the customers in buying some of the items of their needs.
 Fixed Shop small Retailers
Second-hand goods shop

These shops deal in second-hand or used goods, like books, clothes,

automobiles, furniture and other household goods. Generally
persons with modest means purchase goods from such shops.
The goods are sold at lower prices. Such shops may also stock rare
objects of historical value and antique items which are sold at
rather heavy prices to people who have special interest in such
antique goods.
The shops, selling second-hand goods may be located at street
crossings or in busy streets in the form of a stall having very little
structure—a table or a temporary platform to display the books or
may have reasonably good infrastructure, as in the case of those
selling furniture or used cars or scooters or motorcycles.
 Fixed Shop large Retailers
Departmental stores
Some of the important features of a departmental store are as follows:
(a) A modern departmental store may provide all facilities such as restaurant, travel and
information bureau, telephone booth, restrooms, etc. As such they try to provide
maximum service to higher class of customers for whom price is of secondary
importance.
(b) These stores are generally located at a central place in the heart of a city, which caters
to a large number of customers.
(c) As the size of these stores is very large, they are generally formed as a joint stock
company managed by a board of directors. There is a managing director assisted by a
general manager and several department managers.
(d) A departmental store combines both the functions of retailing as well as warehousing.
They purchase directly from manufacturers and operate separate warehouses. That
way they help in eliminating undesirable middlemen between the producers and the
customers.
(e) They have centralised purchasing arrangements. All the purchases in a department
store are made centrally by the purchase department of the store, whereas sales are
decentralised in different departments.
 Fixed Shop large Retailers
Departmental stores
A departmental store is a large establishment offering a wide variety of
products, classified into well-defined departments, aimed at satisfying
practically every customer’s need under one roof.
It has a number of departments, each one confining its activities to one kind of
product. For example, there may be separate departments for toiletries,
medicines, furniture, groceries, electronics, clothing and dress material within a
store.
Thus, they satisfy diverse market segments with a wide variety of goods and
services. It is not uncommon for a department store in the United States of
America to carry ‘needle to an aeroplane’ or ‘all shopping under one roof.’
Everything from ‘a pin to an elephant’ is the spirit behind a typical department
store.
In India real departmental stores have not yet come in a big way in the retailing
business. However, some stores on this line in Indiainclude
‘Akberally’inMumbai and ‘Spencers’ in Chennai.
 Fixed Shopl arge Retailers
Chain Stores or Multiple Shops:

Chain stores or multiple shops are networks of retail shops that are
owned and operated by manufacturers or intermediaries.
Under this type of arrangement, a number of shops with similar
appearance are established in localities, spread over different
parts of the country. These different shops normally deal in
standardised and branded consumer products, which have
rapid sales turnover. These shops are run by the same
organisation and have identical merchandising strategies, with
identical products and displays. Some o f the important features
of such shops may be described as follows:
(a) These shops are located in fairly populous localities, where
sufficient number of customers can be approached. The idea is to
serve the customers at a point which is nearest to their residence
or work place, rather than attracting them to a central place .
 Fixed Shop large Retailers
Chain Stores or Multiple Shops:

(b) The manufacturing/procurement of merchandise for all the retail units is centralised
at the head office, from where the goods are despatched to each of these shops
according to their requirements. This results in savings in the cost of operation of
these stores.
(c) Each retail shop is under the direct supervision of a Branch Manager, who is held
responsible for its day-to-day management. The Branch Manager sends daily
reports to the head office in respect of the sales, cash deposits, and the stock.
(d) All the branches are controlled by the head office, which is concerned with
formulating the policies and getting them implemented.
(e) The prices of goods in such shops are fixed and all sales are made on cash basis.
The cash realised from the sales of merchandise is deposited daily into a local
bank account on behalf of the head office, and a report is sent to the head office in
this regard.
(f) The head office normally appoints inspectors, who are concerned with day-to-day
supervision of the shops, in respect of quality of customer service provided,
adherence to the policies of the head office, and so on.
 Fixed Shopl arge Retailers
Mail order houses

Mail order houses are the retail outlets that sell their merchandise through mail.
There is generally no direct personal contact between the buyers and the sellers in
this type of trading.
For obtaining orders, potential customers are approached through
advertisements in newspapers or magazines, circulars, catalogues, samples
and bills, and price lists sent to them by post.
All the relevant information about the products such as the price. There can be
different alternatives for receiving payments. First, the customers may be asked to
make full payment in advance. Second, the goods may be sent by Value
Payable Post (VPP).
Under this arrangement the goods are sent through post and are delivered to the
customers only on making full payment for the same.
Only the goods that can be (i) graded and standardised, (ii) easily transported at low
cost, (iii) have ready demand in the market, (iv) are available in large quantity
throughout the year, (v) involve least possible competition in the market and (vi)
can be described through pictures etc., are suitable for this type of trading .
 Goods and Services Tax
The Government of India, following the credo of ‘One Nation and One Tax’,
and wanting a unified market in order to ensure the smooth flow of goods
across the country implemented the Goods and Services Tax (GST) from July
1, 2017.
GST is a destination-based single tax on the supply of goods and services from
the manufacturer to the consumer, and has replaced multiple indirect taxes
levied by the Central and the State governments, thereby, converting the
country into a unified market.
Among other benefits, GST is expected to improve the ease of doing business
in tax compliance, reduce the tax burden by eliminating tax on-tax,
improve tax administration, mitigate tax evasion, broaden the organised
segment of the economy and boost tax revenues. The GST has replaced 17
indirect taxes (8 Central + 9 State levels) and 23 cesses of the Centre and the
States, eliminating the need for filing multiple returns and assessments and
rationalising the tax treatment of goods and services along the supply chain
from producers to consumers.
Goods and Services Tax
GST comprises Central GST (CGST) and the State GST (SGST),
subsuming levies previously charged by the Central and the
State governments respectively.
GST (CGST + SGST) is charged at each stage of value addition
and the supplier offsets the levy on inputs in the previous
stages of value chain through the tax credit mechanism. The
last dealer in the supply chain passes on the added GST to the
consumer, making GST a destination-based consumption
tax.
The provision of availing input credit at each stage of value
chain helps in avoiding the cascading effect (tax on tax) under
GST, which is expected to reduce prices of commodities and
benefit the consumers
 Some Facts about GST
1.GST aims to subsume a plethora of taxes into one single tax across the country
and make goods uniformly priced across India, albeit some goods become costly
and some become cheaper.
2. With the implementation of GST, luxury goods have become costlier, while items
of mass consumption have become cheaper.
3. GST is not taxation at source. It is a destination tax or rather it’s a consumption
tax. A product is manufactured in Tamil Nadu and travels through the country
before it reaches Delhi, where the buyer or consumer pays tax for it. Both the
Centre and the State have their share in this tax.
4. The Indian GST will have a mechanism of matching of invoices. Input tax credit
of purchased goods and services will only be available if the taxable supplies
received by the supplies received by the supplier. The Goods and Services Tax
network is a self-regulating mechanism, which not only checks tax frauds and
tax evasion, but also brings in more and more businesses into the formal
economy.
5. Anti-profiteering measure is one of the key features of the recently implemented
Goods and Services Tax law. These measures prevent entities from making
excessive profits. Since the GST, along with the input tax credit, is eventually
expected to bring down prices, a National Anti-profiteering Authority (NAA) is to
be set up to ensure that the benefits accrued to entities due to reduction in costs
is passed on to the consumers. Also, entities that hike rates inordinately, citing
 How will GST Benefit and Empower
Citizens
Origin based tax
 Reduction in overall tax burden is levied at the
production of goods or
 No hidden taxes services and not when
they are consumed
 Development of a harmonised national
market for goods and services
 Higher disposable income in hand,
education and essential needsDestination
based tax or
 Customers to have wider choiceconsumption
 Increased economic activity. tax are levied
where goods
 More employment opportunities.and services
are consumed.
 Key Features of GST
1. The territorial spread of GST is the whole country, including Jammu and Kashmir.
2. GST is applicable on the ‘supply’ of goods or services as against the present concept
of tax on the manufacture or sale of goods or on the provision of services.
3. It is based on the principle of destination-based consumption tax against the
present principle of origin-based taxation.
4. Import of goods and services is treated as inter-State supplies and would be subject to
IGST in addition to the applicable customs duties.
5. CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and
the States under the aegis of the GST Council.
6. There are four tax slabs namely 5 % , 12 %, 18% and 28 % for all goods or services.
7. Exports and supplies to SEZ are zero-rated.
8. There are various modes of payment of tax available to the taxpayer, including
Internet banking, debit/credit card and National Electronic Funds Transfer
(NEFT)/Real Time Gross Settlement (RTGS).
 TERMS OF TRADE
The following are the main terms used in the trade
1. Cash on delivery (COD):- It refers to a type of transaction in
which payment for goods or services is made at the time of
delivery. If the buyer is unable to make payment when the
goods or services are delivered then it will be returned to the
seller.
2. Free on Board or Free on Rail (FoB or FOR):- It rerers to a
contract between the seller and the buyer in which all the
expenses up to the point of delivery to a carrier (it may be a
ship, rail, lorry, etc.) are to be borne by seller.
3. Cost, Insurance and Freight (CFF):- It is the price of goods
which includes not only the cost of goods but also the
insurance and frieght charges payable on goods upto
destination port.
4. Errors and Omissions Excepted(E&OE):- It refers to that term
which is used in trade documents to say that mistakes and