CHAPTER - I

BUSINESS, TRADE AND COMMERCE

Section-I
Nature and Concept of Business
Human activities can be classified into two:-
1.Economic Activities
2.Non Economic Activities

1. Economic Activities
Economic activities are those activities which are undertaken by
people to earn money. The primary objective behind every
economic activity is to earn money. Economic activities may be
business, profession or employment.
Examples for Economic Activities
A worker working in a factory

A teacher teaching in a school

A doctor runs his-own clinic

Practice of a lawyer

Farmer cultivates his land

Activities of a business man

 Non Economic Activities
Non economic activities are those activities which are undertaken
by people without the intention of earning money. They are done
for getting psychological satisfaction or as a hobby.
Examples:-
House wife cooking food for her family
Boy helping an old man to cross the road
Gardening as a hobby
Playing Football
 Human Activities

Economic Activities Non Economic Activities

Business Profession Employment

Religious Patriotic Social
 Business
Business is an economic activity carried out regularly
with the objective of earning profit. Business carries an
element of risk and uncertainty. It is concerned with
production, purchase and sale of goods or supply of
services to earn profit. Manufacturing, trading, mining,
banking, transport, insurance etc. are business
activities.
Features of Business
◆ An Economic Activity
◆ Production and purchase of goods and

services
◆ Sale or exchange of goods and services
◆ Regularity in dealings
◆ Profit motive
◆ Element of risk
◆ Uncertainty of return

◆ Creation of utility
 Profession
Profession is an occupation, in which application of
special knowledge and skill of a person is necessary. It
involves rendering of personal services of a special and
expert nature. They get fee as return for their service.
Services of doctor, lawyers, charted accountants etc.
are example for profession.
 Employment
Employment refers to an occupation in which
people work for others regularly and get salary or
wage in return.
 Difference between Business, Profession and Employment

Basis of Business Profession Employment

Difference

Commencement A business can A person can engage An employee can work in

start at any time in his profession only an office only after getting
after getting appointment letter from
membership of a his employer.
professional body.

Nature of work Production or Rendering of Performing the works

purchase and personalized expert assigned by the
sale of goods service employer
and services
Qualification No. minimum In profession In employment
qualification is specialized qualification is decided
required in knowledge and by the employer.
business training is required
Basis of Business Profession Employment
Difference
Reward Profit Fees Wage or salary
Risk High risk in Fees is generally Salary is fixed
business regular, so there is and regular, so
very little risk there is no risk
Transfer of We can sell the It is not possible in It is not possible
ownership ownership of a profession in employment.
business to another
person
Capital In business In profession In employment
Investment capital limited capital no Capital
investment is investment is investment is
needed needed for needed
establishment of
office
Code of In business there In profession Norms of
Conduct is no code of professional code behavior laid
conduct to be of conduct to be down by the
followed followed. employer are to
 Classification of Business Activities
On the basis of function we can classify business activities into
two:-
I.Industry
II.Commerce
I.Industry
It is that part of business activities which is concerned with
production of goods and extraction of materials. It includes
business activities like raising and processing natural
resources, manufacturing or assembling goods, construction of
buildings etc. Industries can be classified into three broad
categories namely primary, secondary and tertiary.
 1.Primary Industries
It includes all those business activities, which are concerned with
extraction of natural resources, reproduction and development of
living organisms, plants etc. Primary industries can be classified into
two namely extractive industries and genetic industries.

1 (A) Extractive Industry

Extractive industries extract or draw out products from natural
sources like soil, water, air etc. It extract timber from forest, fish
from sea, coal and iron are from soil etc. Primary industries supply
basic raw materials to manufacturing industries.
Eg. Mining, hunting, fishing from natural sources, fruit gathering
 1 (B) Genetic Industries
The industries which are concerned with
reproduction or multiplication of certain species of
plants or animals to earn profits from their sale are
known as genetic industries.
Eg. Agriculture,poultry farming,Agriculture nursery, cattle
breeding, pisciculture (fish farming), forestry etc.
 2.Secondary Industries
These industries engaged in the process of
manufacturing goods or constructing building roads etc.
Secondary Industries use the raw materials supplied by
the primary industry. Secondary industries can be further
subdivided into two:-
A) Manufacturing Industry
B) Construction Industry
 2(A) Manufacturing Industry
Manufacturing Industries are engaged in the process of
converting raw materials into finished good and create form
utilities. They convert cotton into textile, timber into furniture,
iron ore into steel etc. On the basis of methods of operation
used for production, we can classify manufacturing
industries into four categories.
a. Analytical industry
b. Synthetic industry
c. Processing industry
d. Assembling industry
 2 (B) Construction Industry
These industries are engaged in the construction of buildings,
dams, bridges, roads, canals etc. The raw materials required for
these industries are supplied by the manufacturing industries
and extractive industries. Construction industries outputs are
always immovable.
 3. Tertiary Industry
Tertiary industries are providing support service to primary
and secondary industries. Tertiary Industries consists of
banking, Insurance, advertising, communication etc.
 Industry

Primary Secondary Tertiary

Extractive Genetic Manufacturing Construction

Business=Industry + Commerce

Commerce=Trade + Aids to Trade

 II. Commerce
Commerce includes trade and aids to trade. Buying and selling
of goods is termed as trade. But there are a lot of activities that
facilitates the process of trade. These are called aids to trade
(helpers to trade).Aids to trade include banking, insurance,
communication, advertisement and warehousing.
 Trade
Trade is the central activity (nucleus) of commerce. Trade refers
to buying and selling of goods and services with the objective of
earning profit. It helps the movement of goods from the producer
to the ultimate consumers. Traders are the connecting link
between producer and consumer. In the absence of traders,
producers will have to go in search of consumers. Trade may be
of Internal Trade or External Trade.
 Aids To Trade
These are services which help in removing various hindrances
which arise in the process of trade. The important aids to trade
are transportation, communication, banking, insurance,
warehousing, and advertising.

◆ Transportation
◆ Communication

◆ Banking

◆ Insurance

◆ Warehousing

◆ Advertisement

◆ Insurance
 Trade

Home Trade Foreign Trade

Wholesale Trade Retail Trade

Import Export Entrepot

 Objectives of Business

Economic Objectives Social Objectives

1.Earning Profit 1. Supply Quality goods at

2.Innovation Reasonable price
3.Creation of Customers 2. Welfare of employees
4.Productivity 3. Community Service
5.Workers performance
and attitude
 Role of Profit in Business
Securing profit is the basic requirement of a business. Profit
making is essential in business due to the following reasons.
1.Profit is a source of Income
2.Profit is essential for growth and expansion
3.Profit is the index of business performance
4.Profit Increases the efficiency of business
5.Profit enhances prestige
 Business Risks
Risk means the possibility of loss. In business risk is unavoidable.
Business enterprises usually face two types of risks. They are:-
1.Speculative risk
Speculative risk involves both the possibility of gain as well as
loss. It may arise due to change in demand, change in the price
of raw material etc. it may increase or decrease.
Business Risk

Speculative Pure
2. Pure Risk
Pure risk involves only the possibility of loss or no loss. The
chance of fire, theft, etc. are examples of pure risk.
 Nature of Business Risk

➢ Business risk is due to uncertainties

➢ Risk is an essential part of every business

➢ Profit is the reward for risk taking

➢ Risk depends mainly upon the nature and size

of business
 Methods of dealing with Business Risk
No business enterprise can escape from the presence of risk. There
are many ways for a businessman to deal a risk situation.
◆ Take precautionary measures like fire fighting
equipments.

◆ Take an insurance policy to cover various types of

risks.

◆ Decide not to enter into high risk business

transaction.

◆ Take measures like create provisions in the current

earning as in the case of provisions for bad debts.
 Causes of Business Risk

1.Natural Causes
2.Economic Causes

3.Human Causes
4.Government Causes
5.Physical Causes
Factors to be considered while starting a business

➢ Selecting the line of business

OR

➢ Size of the firm

➢ Choice of form of ownership

OR
SMALL BUSINESS
➢ Location of the business

➢ Financial requirements OR

➢ Physical facilities

➢ Work force

➢ Launching the enterprise

Section-2
BUSINESS, TRADE AND COMMERCE
Business is not merely a n activity to earn i n c o me or
p ro fit. Va lu e o f b u sin e ss is m o re th a n ju st a p ro fit
m a kin g a ctivity .B u sin e ss s a tis fie s h u m a n n e e d s
a n d w a n ts b y providing g o o d s a n d s e rvice s.
Busin ess activities led to growt h a n d d e ve l o pme n t
of a n y country .Business (Industry +c o mme r ce ) i s
the major contributor of India's GDP.
India's GDP in 2017 (Rs.) = 182 lakh crores
History of Trade a n d C o m m e r c e
Trade a n d c o m m e r c e h a ve pl a yed a vital role in
ma k i n g India to evolve a s a major player in the
e c o n o mi c world in a n c i e n t ti me s . A r c h a e o l o g i c a l
e vi dences h a ve s h o wn that trade a n d c o m m e r c e
w a s the basis of the e c o n o m y of ancient India.
Co mme r c i a l cities like Ha r a p p a a n d Mo h en j od a r o
we r e f o u n de d in 3 3 0 0 B.C. T h e civilisation h a d
e s t a b l i s h e d c o m m e r c i a l c o n n e c t i o n s wi t h f o r e i g n
countries.
Maritime
transport is the
shipment of
goods (cargo)
and people by
sea and other
waterways.
In d ig e n o u s B a n k i n g S ys t e m
In ancient India indigenous banking s ys t e m played a
prominent role in lending m o n e y a n d financing
domestic a n d foreign trade with currency a n d Hundi.
A s ec o n o mi c life progressed, m o n e y ser ve d a s a
m e d i u m of e xc h a n g e .Th e introduction of metallic
m o n e y a n d its u s e accelerated e c o n o mi c activities.
With the d e ve l op me nt of banking, people b e g a n to
deposit precious metals with lending individuals
functioning as banke rs or Seths, a n d collect m o n e y
from them.
Hundi
Hundi refer to financial instruments (as bill of exchange) evolved
on the Indian sub-continent used in trade and credit
transactions. Hundis normally regarded as bills of exchange,
they were more often used as equivalents of cheques issued by
indigenous bankers. They were used;
➔ as credit instruments (to borrow money ),
➔ as remittance instruments (to transfer funds from
one place to another),
➔ for trade transactions (as bills of exchange).
Category of H u n d i s
O n the basis of p a ym e n t t i m e, Hundi s c a n b e
classified a s ‘Dharshani’ a n d 'M uddati'

1 . D h ars h a n i H u n d i- a H u n d i p a ya b le a t sig h t is
called darshani hundi. It is like a ‘ D e m a n d Bill’

2 . M udda t i (Miadi) – Mu d d at i hundi is o n e wh ich is

pa yabl e after a specified period of time .It is like a
‘Time Bill’
 Types of H u n d i s
Name of Category Functions of H u n d i
Hundi
1.Dhani-jog D arsh a n i/ A D hani-jog hundi(‘Dhani’ m eans
Mu d d a t i ow ner) is one w hich is m ade payble
to the ow ner, or holder or b earer
owner. It is just like a bearer ch eq u e

2.Sah-jog D arsh a n i/ S h a -jo g h u n d i is p a y a b le o n ly to

Mu d d a t i a Sha (‘respectable’person of
financial worth). In some respect it
is similar to a crossed cheque

3.Firman-jog D arsh a n i/ The term ‘Firm an’ refers to order

Mu d d a t i .T his H undi m a d e p ayable to the
order of p ayee. It is just oppo site of
Dhani-jog hundi
 Types of H u n d i s
Name of Category Functions of H u n d i
Hundi
4.Dekhan-har Darshani P a ya b le to the p re se nt e r or
bearer.
5.Jokhmi Muddati T h e te rm ‘J o k h m ’ m e n s
‘ris k’. S u c h h u n d i is u s u a lly
drawn a g a in s t goods
s h ip p e d o n v e s s el a n d a
c er t ai n risk in v o lv e d . If
g o o d s lo s t in tra n s it, th e
drawer or holder bears the
coasts, a nd the D r a we e
c ar r i es n o liability.
R is e of Intermediaries
Intermediaries pla yed a prominent role in t h e
p r o m o t i o n of trad e. T h e y h e l p e d m a n u f a c t u r e r s
especially in foreign trade. Intermediaries consist of
c o mmi ss i o n agents, brokers a n d distributors both
for wholesale a n d retail g o o d s . B a nk e rs b e g a n to
act as trustees a n d executors of e n d o wm e n t s .
Foreign trade w a s financed b y loans.
TRANSPORT
Tr a n s p o r t b y l a n d a n d S e a ( m a r i t i m e ) w a s
p o p u l a r in t h e a n c i e n t t i m e s . R o a d s as a m e a n s of
c o mmu n i c a t i o n h a d a s s u m e d ke y impo rtance in the
entire pr ocess of growth. P e p p e r w a s particularly
valued in the R o m a n E mp i r e a n d w a s k n o w n a s
‘Black Gold’. Various empi r es conflict e a c h others to
do mi n ate the route for this trade.It w a s in the s ea r c h
for a n alternate route to India for spices that led to
the discovery o f A m e ric a b y C o lu m b u s in the
c lo s in g ye a rs o f 1 5 th c e n tu ry a n d a ls o b ro u g h t
Vasco d a G a m a to the s h o r e s of Ma l a b a r in 1 4 9 8 .
Major Trade Centres
T h e r e w e r e all k i n d s o f t o w n s — p o r t t o w n s ,
manufacturing towns, mercantile towns, and pilgrimage
t ow ns. Their exist e nc e i s a n i n d e x o f p r o s p e r i t y
of merchant communities and professional
c l a s s e s . T h e following were the leading trade centres
in ancient India:
1 . P a t a l i p u t r a : It w a s no t o n l y a c o m me r c i a l t o wn , b ut
also a ma j o r c e n t re for e x p o r t o f stones .
2. Peshawar : It was an important exporting centre for
wool and for the import of horses.
3 . I n d r a p r a s t h a : It w a s t h e commercial junction on the
royal road where most routes leading to the east, west,
south and north c o me together.
Major Trade Centres
4. Taxila: It wa s a city of financial a n d c o m m e r c i a l
banks . T h e city occupied a n important place a s a
Buddhist centre of learning. T h e f a mo u s Taxila
University flourished here.

5. Mathura : It wa s a centre of trade a n d people he re

live d e p e n d s o n c o mme r c e . M a n y routes from
S o u t h India touched Ma t h u r a a n d Broach.

6 . Uj j ai n : Cl oths we r e e xported from Ujjain to

different centres. It also h a d trade relations through
the land route with Taxila a n d Peshawar.
Major Trade Centres
7. Varanasi : It g r e w a s a ma j o r c entr e o f textile
industry and bec a me f a mo us for beautiful gold silk
c l o t h a n d s a n d a l w o o d w o r k m a n s h i p . It h a d links w i t h
Taxila a n d B h a r u c h .
8. Surat : It wa s the centre of w e s t e r n trade d u r i n g the
M u g h a l period . Textiles o f Su r a t w e r e f a m o u s for their
g o l d bo r d e r s (zari). It is n o t e w o r t h y that Surat hundi
w a s h o n o u r e d in far off ma r k e t s o f E g y p t a n d Iran.

9 . K a n c h i : To d a y k n o w n a s K a n c h i p u r a m , it w a s he r e
that th e C h i n e s e u s e d to c o m e in f o reig n ships to
p u r c h a s e pearls, glass a n d rare st one s a n d in return
t h e y s o l d g o l d a n d silk.
Major Trade Centres
10 . Kaveripatta : Al so k n o w n as Kaveripatnam, it was
scientific in its construction as a city and provided
loading, unloading and storage facilities of merchandise.
Foreign traders had their headquarters in this city. It was
the centre of trade for perfumes, cosmetics, scents, silk,
wool, cotton, corals, pearls, go ld a n d precious stones;
and also for ship building.

1 1 . M a d u r a : It w a s t h e capital o f t h e Pandayas w h o
controlled t he pearl fisheries of the Gulf of Mannar. It
attracted foreign me r c h a n t s , particularly R o m a n s , fo r
c a r r yi n g o u t o v e r s e a s trade .
Ma jo r Ex p o r t s a n d Imp o r t s
Exports:
Exports consisted of spices, wheat, sugar, indigo,
o p i u m, s e s a m e oil, cotton, parrot, live animals a n d
animal p r od ucts — h i des, skin, furs, horns, tortoise
shells, pearls, s a p p h i r es, quartz, crystal, lapis,
lazuli, granites, turquoise a n d copper etc.

Imports:
Imports included horses, animal products,
C h i n e s e silk, fla x a n d line n, w i n e , g o l d , silver, tin,
c o p p e r, l e a d , r u b i e s , c o r a l , g l a s s , a m b e r, etc.
POSITION OF INDIAN SUBCONTINENT IN
WORLD ECONOMY ( 1 AD UP TO 1991)
Between the 1st and the 7th centuries B C , India is
estimated to have the largest ec onomy of the ancient and
medieval world, controlling about one- third of the
world’s wealth. The country was often referred to as
‘S w a r a n b hu mi ’ a n d ‘Swarndweep ’ in the writings of
ma n y travelers, su ch as M e g a s t h e n e s , Faxian (Fa Hien),
Xu a n za ng ( Hu e n Tsang) and others. The y repeatedly
refer to the prosperity of the country.
POSITION OF INDIAN SUBCONTINENT IN
WORLD ECONOMY ( 1 AD UP TO 1991)
The pre-colonial period in Indian history was an age of
prosperity for I n d i a n e c o n o m y . De s p i t e the g r o w i n g
c o m me r c i a l sector, it is e v i d e n t t h a t t h e 1 8 t h c e n t u r y
I n d i a w a s far b e h i n d We s te r n E u r o p e in t e c h n o l o g y,
i n n o v a t i o n a n d i d e a s . Wi t h t h e i n c r e a s i n g c o n t r o l o f
the East India C o mp a n y causing lack of freedom and
no occurrence of a g r i c u lt ur a l and scientific
revolution, limited reach of education to the masses,
population g ro wth and preference to machines over
man u al skills ma d e India a country wh i ch w as
p r o s p e r o u s b u t w i t h p e o p l e w h o w e r e p o o r.
POSITION OF INDIAN SUBCONTINENT IN
WORLD ECONOMY ( 1 AD UP TO 1991)
T h e B ritis h e m p ire b e g a n to ta k e ro o ts in In d ia in
th e m id – 1 8 t h c e n tury. C o n d itio n o f I n d ia n
E c o n o m y s l o wl y c h a n g e d .T h is c h a n g e d th e
c o n d itio n of th e In d ia n e c o n o m y from b e in g a n
exporter of p r o c e s se d g o o d s to the exporter of r a w
materials a n d buyer of manufactured g o o d s .
 India begins to Reindustrialise
After I n d e p e n d e n c e , the p r oce ss of rebuilding the
e c o n o m y started a n d India we n t for centralised
planning. T h e First Five Year Plan w a s i mp l e men t ed
in 1952. D u e importance wa s given to t h e
e s ta b lis h m e n t o f m o d e rn ind u s trie s, m o d e rn
te ch n olo g ica l a n d s cie n tific in stitu te s, sp a c e a n d
n u cle a r p rog ra m m e s. D e s p ite th e s e e ffo rts, the
Indian e c o n o m y could not de ve lop at a rapid pace.
L a ck of capital formation, rise in population, h u g e
expenditure on defence and inadequate
infrastructure we r e the major r easons. A s a result,
India relied heavily o n borrowings fro m foreign
sources and finally, agreed to economic
liberalisation in 1991.
 Indian Economy at Present

T h e Indian e c o n o m y is o n e of the fastest gr owi ng

e co n o mi e s in the worl d today. Ris ing i ncomes, savings,
inves tm en t o p port unit ies , i n c r e as e d domestic
c ons ump t i o n a n d e d u c a t e d y o u n g e r population en sur es
gr owt h for d e c a d e s to c o m e . T he hi gh gr owt h sectors
h a ve b e e n identified, wh i c h ar e likely to g r o w at a rapid
p ac e worl d o ve r a n d the rec ent initiatives of the
G o ve r n m e n t of India s u c h a s ‘ Ma k e in India’, Skill India’,
Make in India
‘Make in India’ is an initiative launched by the Government of India
on 25 September 2014,to encourage national as well as international
companies to manufacture their products in India. The major
objective behind this project is to create employment opportunities
and enhance skill development in 25 sectors of the economy. The
selected 25sectors are as follows:
Prepared by Anoop Singh Saini