Notes of Ch 1 Business, Trade and Commerce| Class 11th Business Studies

Notes of Ch 1 Business, Trade and Commerce| Class 11th Business Studies

• All Human beings have different types of needs. To fulfill these needs, they perform certain activities.

• Business is a major economic activity as it is concerned with the production and sale of goods and services with the purpose of earning money by meeting people’s demands for goods and services.

• 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.

Section - I - History of trade and commerce in ancient India

History of Trade and Commerce

• Indian subcontinent has Himalayas in the North and bordered by water in the South.

• Silk Routes, a network of roads helped in establishing commercial and political contacts with
adjoining foreign kingdoms and empires of Asia and the world.

• With the help of wealth earned through trade, the chief kingdoms, important trade centres and the industrial belt flourished that helped ancient India in progress of domestic and international trade.

Indigenous Banking System

• Metals came to be used as money as the economic life of the people progressed as they are durable and divisible.
→ This 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 involved a contract which — (i) warrant the payment of money, the promise or order which is unconditional (ii) capable of change through transfer by valid negotiation.

• With the development of banking, people began to deposit precious metals with lending individuals functioning as bankers or Seths. 
→ Money became an instrument for supplying the manufacturers with a means of producing more goods.

• Agriculture and the domestication of animals were main part of the economic life of ancient people.
→ Also, weaving cotton, dyeing fabrics, making clay pots, utensils, and handicrafts, sculpting, cottage industries, masonry, manufacturing, transports (i.e., carts, boats and ships), etc., helped in generating surpluses and savings for further investment.

Rise of Intermediaries

• Intermediaries provided considerable financial security to the manufacturers by assuming responsibility for the risks involved, especially in foreign trade.

• During the Mughal period and the days of the East India Company, the institution of Jagat Seths also developed and exercised great influence.

• Commercial and Industrial banks later evolved to finance trade and commerce and agricultural banks to provide both short-and long-term loans to finance agriculturists.

Transport

• Transport by land and water was popular in the ancient times that helped in maintaining trade.

• Trade routes were structurally wide and suitable for speed and safety.

• Maritime trade was another important branch of global trade network.
→ Malabar Coast has a long history of international maritime trade going back to the era of the Roman Empire.

• 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.

Trading Communities Strengthened

• In different parts of the country, different communities dominated trade.
→ Punjabi and Multani merchants handled business in the northern region.
→ The Bhats managed the trade in the states of Gujarat and Rajasthan.

• Other urban groups included professional classes, such as hakim and vaid (physician), wakil
(Lawyer), pundit or mulla (teachers), painters, musicians, calligraphers, etc.

Merchant Corporations

• Guilds were autonomous corporations formed to protect the interests of the traders through which merchant community also derived power and prestige.

• Traders had to pay octroi duties that were levied on most of the imported articles at varying rates.

• Customs duties varied according to the commodities and from province to province.

• The ferry tax was another source of income generation which had to be paid for passengers, goods,
cattle and carts.

• The guild chief dealt directly with the king or tax collectors and settled the market toll on behalf of its fellow merchants at a fixed sum of money.

Major Trade Centres

• In ancient India, the leading trade centres in ancient India were:

→ Pataliputra: Known as Patna today was a commercial town and also a major centre for export of stones.

→ Peshawar: It was an important exporting centre for wool and for the import of horses.

→ Taxila: It served as a major centre on the important land route between India and Central Asia. It was also a city of financial and commercial banks. The famous Taxila University flourished here.

→  Indraprastha: It was the commercial junction on the royal road where most routes leading to the east, west, south and north converged.

→ Mathura: Many routes from South India touched Mathura and Broach.

→ Varanasi:It grew as a major centre of textile industry and became famous for beautiful gold silk cloth and sandalwood workmanship.

→ Mithila: It established trading colonies in South China, especially in Yunnan.

→ Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain to different centres.

→ Surat: Textiles of Surat were famous for their gold borders (zari).

→ Kanchi: Known as Kanchipuram today where Chinese used to come in foreign ships to purchase pearls, glass and rare stones and in return they sold gold and silk.

→ Madura: It attracted foreign merchants, particularly Romans, for carrying out overseas trade.

→ Broach: It was situated on the banks of river Narmada and was linked with all important marts by roadways.

→ Kaveripatta: 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.

→ Tamralipti: 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.

Major Exports and Imports

Exports

Spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals and animal products—hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, lapis, lazuli, granites, turquoise and copper etc.

Imports

Horses, animal products, Chinese silk, flax and linen, wine, gold, silver, tin, copper, lead, rubies, coral, glass, amber, etc.

Position of Indians Subcontinent In World Economy (1 AD  UP to 1991)

• Between the 1st and the 7th centuries CE, India is estimated to have the largest economy of the ancient and medieval world, controlling about one-third and one-fourth of the world’s wealth.

• The 18th century India was far behind Western Europe in technology, innovation and ideas.

• In the mid-18th century, the British empire began to take roots in India and used revenues generated by the provinces under its rule for purchasing Indian raw materials, spices and goods.
→ Hence, the continuous inflow of bullion that used to come on account of foreign trade stopped.

India begins to Reindustrialise

• After Independence, India went for centralised planning.
→ In 1952, the First Five Year Plan was implemented and importance was given to the establishment of modern industries, modern technological and scientific institutes, space and nuclear programmes.
→ However, the Indian economy could not develop at a rapid pace due to lack of capital formation,
rise in population, huge expenditure on defence and inadequate infrastructure.

• Thus, India relied heavily on borrowings from foreign sources and finally, agreed to economic liberalisation in 1991.

• Today, Indian economy is one of the fastest growing economies in the world today and a preferred FDI destination.

• The recent initiatives of the Government of India such as ‘Make in India’, Skill India’, ‘Digital India’ and roll out of the Foreign Trade Policy (FTP 2015-20) is expected to help the economy in terms of exports and imports and trade balance.

Section II - Nature and Concept of Business

Concept of Business

• Business means being busy.

• 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.

Characteristics of  Business Activites

• An economic activity: Business in considered as an economic activity as it is undertaken with the objective of earning money.

• Production or procurement of goods and services: Business includes all the activities concerned with the production of procurement of goods & services for sales. Services include transportation, banking, Insurance etc.

• Sale or exchange of goods and service: There should be sale or exchange of goods and service between the seller & the buyer. If goods are produced not for the purpose of sale but say for internal consumption it cannot be called a business activity.

• Dealing in goods & services on a regular basis: There should be regularity of dealings or exchange of goods & services. One single transaction of sale or purchase does not constitute business.

• Profit Earning: The main purpose of business is to earn profit. A business cannot survive without making profits. So, a businessman try to maximize profit by increasing the volume of sales or reducing costs.

• Uncertainly of return: Every business invests money with the objective of earning profit but the amount of profit earned may very also there is always a possibility of losses.

• Element of Risk: All business activities carry some elements of risk because future is uncertain and business has no control over several factors like strikes, fire, theft, change in consumer taste etc.

Comparison of Business, Profession and Employement

• Employment: It Refers to those economic activities which are connected with purchase, production or sale of goods & services with the objective of earning profit.
Examples: Fishing, Manufacturing Goods, Mining Producing or selling of electronic goods, Banking.

• Profession: It includes those activities which require special knowledge be skills in the occupation.
Examples: Medical (Doctor),  Legal (Lawyer), Accountancy (CA).

• It refers to the occupation in which people work for others and get remuneration in return.
Examples: Worker, Employee, Salesman.

Basic
Business
Profession
Employment
1. Mode of
establishment
Starts after completing some formalities if needed. Membership of a professional body and certificate of practice. Appointment letter and service agreement.
2. Nature of
work
Provision of goods and services to the public.Personalized services of expert nature. Performing work alloted by the employer according to the contract.
3. Qualification No minimum qualification is necessary. Professional qualification and training required. Qualification and training as prescribed by the employer.
4. Reward and Return Profit earnedProfessional FeeSalary
5. Capital Investment Capital needed according to nature and size Limited capital for establishment. No Capital required.
6. Risk Involves high riskDegree of risk No risk
7. Transfer of Interest Transfer possible with some formalities. Not Possible Not Possible
8. Code of Conduct No Code of ConductProfessional code of conduct is to be followed. Terms and conditions of services contract are to be followed.
9. Examples Shop, Factory Legal, Medical Profession. Jobs in Banks, insurance companies.

Classification of Business Activities

• Industry deals with the production or processing of goods and materials.

• Commerce deals with distribution of goods and services.

Industry

• Primary Industry: The primary industry includes those activities through which the natural resources are used to provide raw material for other industries. It can be classified into two types:

(i) Extractive: Industry under which something is extracted out of earth, water or air such as Coal, Iron, gas. Examples are Mining, Lumbering, Hunting.

(ii) Genetic: Industries under which the breed of animals and vegetables are improved and made more useful. Examples are Poultry Farms, dairy Farming, Fishing Fish Hatching, cattle breeding etc.

• Secondary Industry: Under this industry, new products are manufacturing by using the previously produced things e.g. producing cotton is a primary industry and manufacturing cloth out of cotton is a secondary industry. 

It is of two types.

(i) Manufacturing - These industries convert raw materials or semi-finished products e.g. paper from bamboo, sugar from Sugar cane. It is further divided into four parts.

→ Analytic: Different things are manufactured out of one material such as petrol, diesel, gasoline out of crude oil.

→ Synthetic: Many raw materials are mixed to produce more useful products such as cement.

→ Processing: Industries wherein useful things are manufactured by making raw material to pass through different production processes such as sugar and paper.

→ Assembling: Different component parts to make a new product, as in the case of television, car, computer, etc.

ii) Construction Industries - Industries that are involved in the construction of building, dams, bridge, roads as well as tunnels and canals. 

iii) Tertiary or Service Industry - This includes those services which help business to move smoothly such as transport, bank, insurance, storage and advertising.

Commerce

Commerce refers to all those activities which are concerned with the transfer of goods and services from the producers to the consumers. It embraces all those activities which are necessary for maintaining a free flow of goods and services.

The function of commerce are:

• Removing the hindrance of person by making goods available to consumers from the producers. through trade. 

• Transportation removes hindrance of place by moving goods from the place of production to the markets for sale. 

• Storage and warehousing activities remove the hindrance of time by facilitating holding of stock of goods to be sold as and when required. 

• Insurance removes hindrance of risk of loss or damage of goods due to theft. fire. accidents etc. 

• Banking removes hindrance of finance by providing funds to a businessman for acquiring assets. purchasing raw materials and meeting other expenses. 

• Advertising removes hindrance of information by informing consumers about the goods and services available in the market.

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 multinational companies to manufacture their products in India.

• Major Objective: Job creation and skill enhancement in 25 sectors of the economy.

Commerce includes two types of activities.

• Trade: Refers to buying and selling of goods and services with the objective of earning profit. It is classified into two categories :

(i) Internal Trade: Takes place within a country. Internal Trade is classified into two categories: 

→ Wholesale Trade: Refers to buying and selling o goods in large quantities. A wholesaler buys goods in large quantities from the producers and sell them to other dealers. He serves as a connecting link between the producer and retailer.

→ Retail Trade: Refers to buying of goods and services in relatively small quantities & selling them to the ultimate consumers.

(ii) External Trade: Trade between two or more countries. External trade can he classified into three categories:

→ Import trade: If goods are purchased from another country. if is called import trade. Example: Buying soft toys from China and selling here in India.

→ Export Trade: If goods are sold to other countries it is called export trade. Example: Selling Basmati Rice to USA from India.

→ Enterpot: Where goods are imported for export to other countries. Example: Indian firms may import some goods from America and export the service to Nepal.

Auxiliaries to Trade

Those activities which are meant for assisting trade are known as auxiliaries to trade. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. These are:

(i) Transportation and Communication: Production of goods generally takes place in particular locations. But these goods are required for consumption in different parts of the country. The obstacle of place is removed by the transport. Along with transport communication is also an important service. It helps in exchange of information between producers. consumers and traders. The common communication services are postal service, telephone, fax, Internet etc

(ii) Banking and Finance: Business needs funds for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained from a bank.

(iii) Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities.

(iv) Warehousing: There is generally a time lag between the production and consumption of goods. This problem can be solved by storing the goods in warehouses from the time of production till the time they are demanded by customers.

(v) Advertising: Advertising is one of the methods of promoting the sale of products. It helps in
providing information about available goods and services and inducing customers to buy particular items.

Objective of Business

• Market standing: Market standing refers to the position of an enterprise in relation to its competitors.

• Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made.

•  Productivity: Productivity is ascertained by comparing the value of output with the value of inputs.

• Physical and financial resources: Any business requires physical resources, like plants, machines, offices and financial resources, i.e., funds to be able to produce and supply goods and services to its customers.

• Earning profits: One of the objectives of business is to earn profits on the capital employed.

• Manager performance and development: Business enterprises need managers to conduct and coordinate business activity.

• Worker performance and attitude: Workers’ performance and attitudes determine their contribution towards productivity and profitability of any enterprise.

• Social responsibility: Refers to the obligation of business firms to contribute resources for solving social problems and work in a socially desirable manner.

Business Risk

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

Nature of Business Risks

(i) Business risks arise due to uncertainties.

(ii) Risk is an essential part of every business.

(iii)  Degree of risk depends mainly upon the nature and size of business.

(iv) Profit is the reward for risk taking.

Cause of Business Risks

(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, management 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.

(iv) Other causes - These include unforeseen events like political disturbances. fluctuation in exchange rates etc. 

Starting a Business - Basic Factors

(i) Selecting the line of business: The first thing to be decided by the entrepreneur is the line and type of business to be undertaken. 

(ii) Size of business: After deciding the line of business, the entrepreneur must decide whether he wants to set up large scale or small scale business.

(iii) Choice of form of Business organization: A business organisation may take the form of a sale proprietorship, partnership, or a joint stock company.

(iv) Location of Business Enterprise: The entrepreneur has to decide the place where the enterprise will be located. Before taking this decision he must find out availability of raw materials, power, labour, banking, transportation etc.

(v) Financing the proposition: It is concerned with providing the necessary capital for starting, as well
as, for continuing the proposed business.

(vi) Physical facilities: Availability of physical facilities, including machines and equipment, building and supportive services is an important factor to be considered at the start of the business.

(vii) Plant layout:  The entrepreneur should draw a layout plan showing the arrangement of physical facilities.

(viii) Competent and committed worked force: The entrepreneur must identify the requirement of skilled and unskilled workers and managerial staff to perform various activities.

(ix) Tax planning: The entrepreneur must try to analyze the types of taxes as there are a number of tax laws in the country which affect the functioning of business.

(x) Setting up of the Enterprise: After analyzing the above mentioned points carefully the entrepreneur can start the business which would mean mobilizing various resources and completing legal formalities.

NCERT Solutions of Chapter 1 Business, Trade and Commerce

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