Unit 9: Internal Trade

INTRODUCTION

Trade refers to buying and selling of goods and services with the aim of earning profits. The importance of trade has significantly increased in the modern times as new products are being developed every day. Trade helps in making the goods produced available to ultimate consumers or users.

Classification of Trade

Internal Trade:- It refers to buying and selling of goods and services within the geographical boundaries of a country.
External Trade:- It refers to buying and selling of goods and services between persons or organizations operating in two or more countries.

INTERNAL TRADE

Internal trade is the buying and selling of goods and services within the boundaries of a nation.

Internal trade is also known as ‘Home Trade’ or ‘Inland Trade’ or ‘Domestic Trade’.
The payments in internal trade are made in national home currency directly or through the national banking system.
Internal trade is free from custom duty or import duty as goods are part of domestic production and are meant for domestic consumption.
Internal trade aims at equitable distribution of goods within a nation speedily and at reasonable cost.

Types of Internal trade

(i) wholesale trade (ii) retail trade.

WHOLESALE TRADE

Whole sale trade refers to buying and selling of goods and services in large quantities for the purpose of resale or intermediate use.

Wholesaling is concerned with the activities of those persons or establishment which sell to retailers and other merchants, and/or to industrial, institutional and commercial users but who do not sell in significant amount to ultimate consumers. Wholesalers serve as an important link between manufacturers and retailers.

Features

This trade provides link between the manufacturer and the retailer as there is usually no direct dealing with the ultimate consumers.
Wholesaler buys goods in bigger lots and sells in smaller lots.
Wholesaler is the first intermediary in the distribution chain.
It requires large capital to maintain large stock and to provide credit facilities to the retailers.
The margin of profit is generally low in order to take advantage of high turnover.
The wholesaler usually specializes in one particular line of goods. For example, foodgrains, stationery etc.

Services of wholesalers

Wholesalers provide various services to manufacturers as well as retailers and provide immense help in the distribution of goods and services. By making these are needed and at a time when these are needed for consumption or use, they provide both the time and place utility.

Services to Manufactures

Major services offered by wholesalers to the producers of goods and services are given below:

Facilitating large scale production: Wholesalers collect small orders from a number or retailer and pass on the pool of such orders to the manufacturers and of make purchases in bulk quantities. This enables the producers to undertake production on a large scale and take advantage of the economies of scale.
Bearing risk: The wholesale merchants deal in good in their own name, take delivery of the goods and keep the good 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 the extent, they relieve the manufacturers from bearing these risks.
Financial assistance: The wholesalers provide financial assistance to the manufactures in the sense that they generally make cash payment for the goods purchased by them. To that extent, the manufactures need not block their capital in the stocks, sometimes they also advance money to the producers for bulk orders placed by them.
Expert advice: As the wholesalers are in direct contact with the retailers, they are in a position to advice the manufacturers customer’s tastes and preference, market conditions, competitive activities and the features preferred by the buyers. They serve as an important on these and related aspects.
Help in marketing function: The wholesalers take care of the wholesalers take care of the distribution of goods to a 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.
Facilitate Continuity:- The wholesalers purchase the goods from producers as and when these are produced. It helps the manufactures in maintaining continuity of production activity.
Storage:- The wholesaler takes delivery of goods when these are produced in the factory and store them in their own warehouses. It relieves the manufacture of the storing problems.

Services to Retailers

The important services offered by manufacturers to the retailers are described as below:

Availability of goods: Retailers have to maintain adequate stock of variety to their customers. The wholesalers make the products of various to their customer. The wholesalers make the products of various manufacturers readily available to the retailers. This relieves the retailer of the work of collecting goods from several producers and keeping big inventory of the same.
Marketing Support: The whole selars 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.
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.
Specialized knowledge: The wholesalers specialize in one line of products and know the pulse of the market. They pass on the benefit of their specialized knowledge to the retailers. They inform the retailers about the new products, their uses, quality, prices, etc. they may also advise them on the décor of the retail outlet, allocation of shelf space and demonstration of certain products.
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 position to avoid the risk of storage, pilferage, obsolescence, reduction in prices and demand fluctuations in respect of large quantities of goods that they would have to purchase in case the services of wholesalers are not available.
Economies of Scale:- wholesaler enjoys the economies of bulk purchase. They purchase at lower prices and store goods during the period of low demand. Wholesaler shares a part of the benefits with the retailer.
Transportation Facility:- Many wholesalers maintain their own transport for movement of goods from warehouses to the place of retailers. It makes retailers free from the problem of transportation of goods purchased by them.

RETAIL TRADE

A retailer is a business enterprise that is engaged in the sale of goods and services directly to the ultimate consumers. The retailer normally buys goods in large quantities form the wholesalers and sells them in small quantities to the ultimate consumers. The retails represents the final stage in the distribution where goods are transferred from the hands of the hands of the manufacturers or wholesalers to the final consumers or users. Retailing is, devoted to the sale of goods and services to the ultimate consumers for their personal and non-business use.

Features

This trade provides link between the wholesaler and the ultimate consumer. Retailer is the last link in the distribution chain.
Retailer buys and sells in small quantities.
Retailer deals in large variety of goods.
Retailer sells goods of final consumer for their personal consumption and not for further sale.
The area of operation of retailer is generally limited to a locality.
Retailer generally maintains direct and personal contact with the customers.
It is not necessary that retail trade is carried on in a shop or store. Retailing may also be done through telephone, internet, vending machines, etc.

Services of Retailers

Retailers serve as an important link between the producers and final consumers in the distribution of products and services to the consumers, wholesalers and manufacturers. Some of he important services of retailers are described as below:

Services to Manufacturers and wholesalers

The invaluable services that the retailers render to the wholesalers and producers are given as here under:

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.
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 actualizing the sale of the products.
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 enable them to operate on, at relatively large scale, and thereby fully concentrate on their other activities.
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 organization.
Help in Promotion: From time-to-time, manufacturer 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 to Consumers

Some of the important services of retailers from the point of view of consumers are as follows:

Regular available of products: The most important service of a retailer to consumers is to maintain regular availability of various products produced by different manufacturers. This enable the buyers to buy products as and when needed.
New product 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 I the buying decision making process of the purchase of such goods.
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.
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.
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.
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.

Classification of Retailers

Size of business:- On the basis of size, retailers may be categorized into large, medium and small retailers. Some customers prefer to visit large retail houses at central places, while some prefer small shops located in their local area.
Ownership:- On the basis of type of ownership, retailers may be categorized into sole proprietorship, partnership, cooperative store and company.
Merchandise or product Mix:- On the basis of merchandise handled the retailers may be classified as Speciality store , Departmental Store etc.
Fixed Place of Business:- Retailers may also be classified on the basis whether or not they have a fixed place of business.

There are two categories of retailers:

Itinerant Retailers (who do not have a fixed place of business to operate);
Fixed shop Retailers (who have a fixed place of business to operate.)

TYPES OF RETAILING TRADE

There are many types of retailers in India. For proper understanding, it would be useful, to classify them into certain common categories. Different classification have been used by experts to categories retailers into different types. For example, on the basis of ‘size of business’, they may be categorized into large, medium and small retailers. On the basis of ‘type of ownership’, they may be categorized into ‘sole trader’, ‘Partnership firm’, ‘cooperative store’ and ‘company’. Similarly, on the basis of ‘merchandise handled’, the different classification may be ‘Specialty store’, ‘supermarket ’ and ‘departmental store’, Another common basis of classification is whether or not they have fixed place of business. On this basis, there are two categories of retailers:

Itinerant retailers, and
Fixed shop retailers

Both these types of retailer have been described I detail in the sections that follow here after.

Itinerant Retailers

Itinerant retailers are traders who do not have a fixed place of business to operate from. They keep on moving with their wares from street to street or place to place, in search of customers.

Characteristics

They are small traders operating with limited resources.
They normally deal in consumer products of daily’ use such as toiletry products, fruits and vegetables, and so no.
The emphasis of such traders is on providing greater customer service by making the products available at the very doorstep of the customers.
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.

Some of the most common types of itinerant retailers operating in India are as below:

Hawkers and Peddlers: peddlers and hawkers are probably amongst the oldest form of retailers in the market place who have not lost their utility even during the modern times. They are small producers of petty traders who carry the products on a bicycle, a hand cart, a cycle-rickshaw to place to sell their merchandise at the doorstep of the customers.
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 Saturday, and so no. 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 group of customers and deal I low-priced consumer items of daily use.
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.
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 form 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

This is the most common type of retailing in the market place. As it evident form the name, these are retail shops who maintain permanent establishment to sell their merchandise, they, therefore, do not move from place to place to serve their customers. Some of the other characteristics of such traders are:

Characteristics

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 form very small to very large.
These retailers may be dealing in different products, including consumer durables as well as non-durables.
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: General stores are most commonly found in a local market and residential areas. As the name indicated, these shops carry stock of a variety of products required to satisfy the day-to-day needs of the consumers residing in nearby localities. Such stores remain open for long hours at convenient timings and often provide credit facilities to some of their regular customers.
Single Line Stores:- Single line stores are those shops which deal in a single product line such as readymade garments, shoes, etc.
Specialty shops: This type of retail store is, of late, becoming very popular, particularly in urban areas, instead of selling a variety of products of different types, retail stores specialize 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 good, etc. These are some of the commonly found stores of this type in the marketplace.
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.
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 stocks rate objects of historical value and antique items which are sold at rather heavy prices to people who have rather heavy prices to people who have rather heavy prices to people who have special interest in such antique goods.

Fixed shop-Large stores

Departmental stores

A departmental store is a large establishment offering 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.

Features

Central location:- It is generally located at a central place in the city so that people living in different areas may reach there easily.
Provision of services:- A modern departmental store renders a number of facilities and services to their consumers such as restaurant, travel and information bureau, telephone booth, rest rooms, etc.
Corporate Status:- The departmental stores are generally formed as a joint stock company because of their large size.
Elimination of Middlemen:- A departmental store purchases goods directly from the manufacturers, which sells them to the ultimate consumers.
Centralized purchasing:- All the purchases in a department store are made centrally by the purchase department. However, the sales are decentralized in different departments.
Large Variety of Goods:- These stores maintain a large variety of goods and customers can purchase almost all their requirements from these stores.

Advantages

The major advantages of retailing through departmental stores may be listed as follows:

Attract large number of customers: As these stores are usually located at central places, they attract a large number of customers during the best part of the day.
Convenience in buying: By offering large variety of goods under one roof, the departmental stores provide great convenience to customers in buying almost all goods of their requirements at one place. As a result, customers do not have to rum from one place to another to complete their shopping.
Attractive services: A departmental store aims at providing maximum services to the customers. Some of the services offered by it include home delivery of goods, execution of telephone orders, grant of credit facilities and provision for restrooms, telephone booths, restaurants, saloons, etc.
Economy of large-operations: As these stores are organized at a very large scale, the benefits of large scale operations, particularly, in respect of purchase of goods are available to them.
Promotion of sales: The departmental stores are in a position of spend considerable amount of money on advertising and other promotional activities, which help in boosting their sales.

Limitations

However, there are certain limitations of this type of retailing. These are described as follows:

Lack of personal attention: Because of the large-scale operations, it is very difficult to provide adequate personal attention to the customers in these stores.
High operating cost: As these stores give more emphasis on providing services, their operating costs tend to be on the higher side. These costs, in turn, make the prices of the goods high. They are, therefore, not attractive to the lower income group of people.
High possibility of loss: As a result of high operating costs and large-scale operations, the chances of incurring losses in a departmental store are high. For example, if there is any change in the tastes of customers or latest fashions, it necessitates selling of such out-of-fashion articles in clearance sale, to reduce the huge inventory of goods built up.
Inconvenient location: As a departmental store is generally situated at a central location, it is not convenient for the purchase of goods that are needed at short notice. In spite of some of these limitations the departmental stores have been popular in some of the western countries of the world because of their benefits to a certain class of customers.
Chain stores or Multiple shops: chain stores of multiple shops are networks of retail shops that are owned and operated by manufactures 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 standardized and branded consumer products, which have rapid sales turnover. These shops are run by the same organization and have identical products and displays. Some of the important features of such shops may be described as follows;

Location:- 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 then attracting them to a central place.
Centralized Purchases:– The head office makes all the purchases for all these multiple shops. Thereafter, goods are dispatched to different shops as per their requirements. It save the cost of operation of these shops.
Centralized control:– All stores are controlled by the head office, which formulates policies and get them implemented in different shops. Branch manager is responsible for each retail shop and sends daily reports to the head office in respect of sales, cash deposits and the requirements of the stock.
Cash Sales:- All the sales at the multiple shops are made on cash basis and cash is deposited daily into the bank account on behalf of the head office and a report is sent to the head office in this regard.
Regular Inspection:– The head office normally appoints inspectors, who inspect the retails shops with respect to quality of customer service provided, adherence to policies of head office, and so on.
Prices:– Goods are sold at all the stores at a centrally fixed price.
Window dressing:– All the stores are decorated in the same setting and style.

Advantages

Multiple shops are offering various advantages to the consumers, which are described as follows:

Economies of scale: As there is central procurement, the multiple shop organization enjoys the economies of scale.
Elimination of middlemen: By selling directly to the consumers, the multiple-shop organization is able to eliminate unnecessary middlemen in the sale of goods and services.
Non bad debts: Since all the sales in these shops are made on cash basis, there are no losses on account of bad debts.
Transfer of goods: The gods not in demand in a particular locality may be transferred to another locality where it is in demand. This reduces the chances of dead stock in these shops.
Diffusion of risk: The losses incurred by one shop may be covered by profits in other shops, reducing the total risk of and organization.

Limitations

Limited selection of goods: Some of the multiple shops deal only in limited range of products. This is especially the problem with the chain stores which are owned and operated by manufacturers, and as such mostly sell the products produced by the themselves.
Lack of initiative: The personal managing the multiple shops have to obey the instructions received from the head office.
Lack of Personal touch: Lack of initiative in the employees sometimes leads to indifference and lack of personal touch in them.
Difficult of change demand: if the demand for the merchandise handled by multiple shops change rapidly, the management may have to sustain huge losses because of large stocks lying unsold at he central depot.
No Credit Facility:– The multiple shops sell goods on cash basis only. Lack of credit facilities discourages certain class of customers.
Huge Capital Requirement:– Establishment of chain stores requires huge investment both in fixed assets as well as in current assets. So, chain stores may be run only by a company which has considerable financial resources.

Difference between Departmental stores and multiple shops

Although both these type of retail organization are large establishments, there are certain differences between the two. Such differences are given here below:

Location: A departmental store is located at a central place. where a large number of customers can be attracted to it. However, the multiple stores are located at a number of places for approaching a large number of customers. Thus, central location is not necessary for a multiple shop.
Range of products: Departmental stress aim at satisfying all the needs of customers under one roof. As such, they have to carry a variety of products of different types. However, the multiple stores generally aim to satisfy the requirements of customers relating to a specified range of their products only.
Services offered: The departmental stores lay great emphasis on providing maximum service to their customers. Some of the services, provided by them include alternation of garments, restaurant and so on. As against this the multiple shops provide very limited service confined to guarantees and repairs if the sold out goods turn out to be defective.
Pricing: The multiple shop chains sell goods at fixed prices and maintain uniform pricing policies for all the shops. The departmental stores, however, do not have uniform pricing policies for all the shops. The departmental stores, however, do not have uniform pricing policy for all the departments; rather they have to occasionally offer discounts on certain products and varieties to clear their stock.
Class of customers: The depart mental stores cater to the needs of relatively high income group of customers who care more for the customers who care more for the services provided rather than the prices of the product. The multiple shops, on the other hand, cater to different types of customers, including those belonging to the lower income groups, who are interested in buying quality goods t reasonable prices.
Credit facilities: All sales in the multiple shops are made strictly on cash basis. In contrast, the departmental stores may provide credit facilities to some of their regular customers.
Flexibility: As the departmental stores deal in a wide variety of products, they have certain flexibility in respect of the line of goods marketed. However, there is not much scope for flexibility in the chain stores, which deal only in limited line of products.

Mail Order Houses

Mail order houses represents that from of retailing in which business transactions are conducted through postal communication, without any personal contract with the buyers.

Procedure for mail order houses

Preparation of the mailing list:- A list of potential consumers is prepared through different sources, like telephone directories, lists of members of clubs or trade associations.
Approach to customers:- The sellers approach the potential customers through advertisements in newspapers or magazines, circulars, catalogues, samples and bills.
Receiving of orders:- Customers send their orders by post. Orders received are entered in the ‘Orders Received Book’.
Dispatch of goods:- goods are carefully verified in order to ensure that goods dispatched are in accordance with buyer’s specifications. Goods are properly packed and a parcel is delivered to the post office.
Payments for goods:- The payment can be received in 3 different ways:

Customers may be asked to make full payment in advance.
Goods may be sent by Value Payable post (VPP), in which goods are sent through post and are delivered to the customers only when the full payment is made.
Goods may be sent through a bank, which is instructed to deliver the goods only when the customer makes the full payment.

Suitability of Goods for mail order business

All kinds of goods cannot be purchased or sold through mail order business. The products suitable for the purpose of retailing through this mechanism should have following characteristics:

Goods should not be perishable or bulky as they cannot be easily handled.
Goods should be graded and standardized.
Goods can be easily transported at low cost.
Goods should have ready demand in the market.
Goods should be available in large quantity throughout the year.
Goods should be capable of easy description, i.e. goods can be described through pictorial representation and effective descriptive writing.

Advantages

Limited capital requirement:- this business can be started with limited capital as no investment is needed in shops, furniture and stock of goods.
Elimination of Middlemen:- There is no need for the middlemen as there is a direct contact between the buyer and the seller. It saves the amount of commission to be paid to the middlemen.
Absence of Bad Debt:- There is no risk of losses due to bad debts as all the sales are made on cash basis.
Wide Reach:- this business can capture a wide market as goods can be sent to all the places having postal services. There is no geographical limit of market.
Convenience:- The customer gets the delivery of goods at his doorsteps. This results in great convenience to the customers as they are not required to visit the shop.

Limitation

Lack of personal contact:- As there is no personal contact between the buyers and the sellers, there are greater chances of misunderstanding and mistrust between the two. The buyers cannot examine the products before buying and the sellers cannot provide services and personal attention to the customers.
High promotion cost:- Advertisement is the base of mail order business. The enterprise has to incur heavy expenditure on advertisement and other methods of promotion in order to inform and persuade the potential buyers to buy their products.
No After-Sales service:- There is absence of after sales services in this There is absence of after sales services in this business as buyers and sellers are generally located far away from each other and there is no personal contact between the two.
No credit facilities:- Customers with limited means are not interested in this type of trading due to lack of credit facilities.
Delayed Delivery:- There is no immediate delivery of goods to the customers as receipts and execution of order through mail takes considerable time.
Possibility of Abuse:- There are greater chances of being cheated in mail order business due to possibility of false statements and promises in the advertisements. Goods supplied may not be as promised. In many cases, goods are not dispatched by the seller even after receiving the full or substantial payment.
High Dependence on postal services:- the success of mail order business depends heavily on availability of efficient postal services. However, in India, his type of business has limited prospects due to lack of postal facilities in many parts of the country.

Goods and Services Tax (GST) Characteristics

Explanation of goods and services Tax (GST) working of GST, different types of GST, GST objectives, GST features, advantages of GST etc.

The goods and services Tax (GST) is also known as the goods and services Tax. One of India’s many indirect taxes, it has supplanted a variety of others such as excise duty, VAT, and services tax. The goods ad services Tax Act was passed by the parliament on March 29, 2017, and it went into effect on July 1, 2017, making it the most recent piece of legislation to be passed in the country.

Types of Taxes under GST

Central Goods and Services Tax (CGST): The CGST is levied on products and services that are supplied within a state
State Goods and services Tax (SGST): Like the central goods and Services Tax (CGST), the state goods and services Tax (SGST) is levied on the sale of goods and services within a state
Integrated Goods and Services Tax (IGST): The IGST is levied on interstate transaction involving the sale of goods and services

Some Facts about GST

Single tax structure:- GST aims to subsume a multiple taxes into one single tax across the country and make goods uniformly priced across India. Though, in this process, some goods become costly and some become cheaper.
Effect on Prices:- With the implementation of GST, luxury goods have become costlier, while items of mass consumption have become cheaper.
Consumption based Tax:- GST is a ‘Consumption Based Tax’, i.e. the tax is received by the state in which the goods or services are consumed and not by the state in which such goods are manufactured. For example, if 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.
Invoice Matching:- The Indian GST will have a mechanism of matching of invoices. Input Tax Credit of purchased services and goods will be available only when the inward supply details filed in by buyer matches the outward supplies details filed in by suppler.
Anti-Profiteering Measure:- It is one of the key features of the recently implemented GST law. These measures prevent entities from making excessive profits. As per the Anti-Profiteering rules, the benefit of reduced GST tax rates and increased input tax credit should be passed on to the consumer in the form of reduced price.
Registration under GST:- a business whose aggregate turnover in a financial year exceeds Rs.20 lakhs has to compulsorily register under Goods and Services Tax. This limit is set at Rs.10 lakhs for North Eastern and hilly states flagged as special category states.

Input Tax Credit under GST

Input tax credit means reducing the taxes paid on inputs form taxes to be paid on output. When any supply of services or goods are supplied to a taxable person, the GST charged is known as Input Tax. The supplier at each stage is permitted to avail credit of GST paid on the purchase of goods and /or services ad can set off this credit against the GST payable on the supply of goods and services to be made by him. Thus the final consumer bears the GST charged by the last supplier in the supply chain, with set-off benefits at all the previous stages. Hence, the tax will be levied only on the value added, which results in avoiding double taxation.

For Example, if tax payable b a manufacturer on the output, i.e. final product is Rs.450 and he has already paid tax of Rs.300 on input, i.e. purchases, then he can claim ‘Input Credit” of Rs.300 and he needs to deposit only Rs.150 in taxes.

Key Features of GST

Applicability of GST:- The territorial spread of GST is the whole country.
Applicable on supply of goods and Services:- GST is applicable on the ‘supply’ of goods or services as against the earlier concept of tax on the manufacture or sale of goods or on the provision of services.
Consumption based tax:- It is based on the principle of destination-based consumption tax against the earlier principle of origin-based taxation.
GST on Imports:- Import of goods and services is treated as Inter-State supplies and would be subject to IGST in addition to the applicable customs duties.
GST Rates:- CGST, SGST and IGST are levied at rates mutually agreed upon by the central and the states under the aegis of the GST Council.
Payment of GST:- 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).

GST Council

Goods and Services Tax Council is a constitutional body for making recommendation to the union and state government on issue related to goods and services tax.

Constitution:- As per Article 279A of the amended constitution, the GST Council which will be joint forum of the Central and the States, shall consist of the following members:

Chairperson: Finance minister
Vice Chairperson: Chosen amongst the ministers of state government.
Members: Mos and all ministers of state government.

2. Quorum:- 50% of the total number of members of the goods and services tax council shall constitute the quorum at its meeting.

3. Majority required for taking Decisions:- Every decision of the GST Council shall be taken at a meeting by a majority of not less than 75% of the weighted votes of the members present and voting, in accordance with the following principles, namely:

Vote of the central government shall have a weightage of one-third of the total votes cast, and
Votes of all the state governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

Studynatic

EXERCISES

Short Answer Questions

What is meant by internal trade?

Ans: Buying and selling of goods and services within the boundaries of a nation are referred to as internal trade. Whether the produce are purchased from a neighborhood shop in locality or a central market or a departmental store or a mall or even from any doo-to-door salesperson or form an exhibition, all these are the goods are purchased from an individual or establishment within a country. No custom duty or import duty is levied on such trade as goods are part of domestic production and are meant for domestic consumption. Generally, payment has to be made in the legal tender of the country or any other acceptable currency

2. Specify the characteristics of fixed shop retailers.

Ans: Fixed shop Retailers is the most common type of retailing in the market place. As it evident from the name, these are retail shops who maintain permanent establishment to sell their merchandise, they, therefore, do not move from place to place to serve their customers. Some of the characteristics of such traders are:

Characteristics

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 form very small to very large.
These retailers may be dealing in different products, including consumer durables as well as non-durables.
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.

3. What purpose is served by wholesalers providing warehousing facilities?

Ans:

Whole sale trade refers to buying and selling of goods and services in large quantities for the purpose of resale or intermediate use.

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4. How does market information provided by the wholesalers benefit the manufacturers?

Ans: Wholesalers provide a variety of information to both manufacturers and customers. To manufacturers, they provide information about:

1. The tastes and preferences of customers

2. Conditions prevailing in the market

3. Level of competition in the market and

4. Types of goods and features demanded by consumers.

This information helps manufacturers to cater to the changing needs of consumers.

5. How does the wholesaler help the manufacturer in availing the economies of scale?

Ans:

Wholesalers often purchase goods in bulk quantities from manufacturers. Once a purchase is made, the wholesalers distribute the goods in small quantities to retailers for further resale. However, during this process, they provide manufacturers with a variety of warehousing facilities such as collection, storage, marketing, and distribution of goods. These services reduce the burden on manufacturers by creating time and place utility, thus enabling them to produce goods on a large scale and benefit from the economies of scale.

6. Distinguish between single line stores and speciality stores. Can you identify such stores in your locality?

Ans:

The distinction between a single-line store and a specialty store lies in the range of products they offer and their level of specialization:

Single-Line Store:

A retail outlet that deals in a single category of products.
These stores have a variety of products within that category but do not diversify beyond it.
Example: A clothing store selling a range of apparel (shirts, dresses, pants, etc.) but nothing else.

Specialty Store:

Focuses on a specific niche or subset of a product category.
These stores cater to a particular market or interest, often offering unique or premium products.
Example: A formal wear boutique or a store exclusively selling running shoes.

Example in a Locality

Single-Line Store: A supermarket like Reliance Fresh or D-Mart, selling groceries and household essentials only.

Specialty Store: A shop like Nike or Levi’s, selling only branded sportswear or jeans, respectively.

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7. How would you differentiate between trades and street shops?

Ans:

Trade

Definition: Trade refers to the broader activity of buying, selling, or exchanging goods and services, typically on a larger scale.

Scope: Includes wholesale and retail, national and international transactions.

Operation: Can involve businesses operating in physical spaces, online platforms, or through distribution networks.

Examples: Import-export businesses, wholesale distributors, e-commerce platforms, and large retail chains.

Audience: Often targets other businesses (B2B) or larger groups of consumers (B2C).

Formality: Usually more formal, regulated, and structured.

Street Shop

Definition: A street shop is a small-scale retail establishment located on a street, typically catering to local customers.

Scope: Focuses on retail sales in a specific geographic area.

Operation: Operates from a physical storefront on a street, often with direct customer interaction.

Examples: Local grocery stores, small boutiques, food stalls, and kiosks.

Audience: Primarily serves individual consumers within the neighborhood or passersby.

Formality: Often less formal, with fewer regulations compared to larger businesses, though they still adhere to local laws.

In summary, trade encompasses a broader spectrum of business activities, while a street shop represents a localized, retail-specific aspect of trade.

8. Explain the services offered by wholesalers to manufacturers.

Ans: Wholesalers provide a range of services to manufacturers that help facilitate the distribution and sale of products. These services include:

1. Market Research and Feedback

Wholesalers interact directly with retailers and customers, providing valuable feedback on market trends, consumer preferences, and product performance.

They act as a communication link between manufacturers and the market, enabling manufacturers to make informed decisions about product design, pricing, and marketing strategies.

2. Storage and Inventory Management

Wholesalers purchase goods in bulk from manufacturers and store them in their warehouses.

This helps manufacturers reduce the cost and complexity of storage and inventory management, enabling them to focus on production.

3. Bulk Purchasing

By purchasing large quantities of goods, wholesalers help manufacturers achieve economies of scale in production.

This reduces manufacturing costs and ensures steady demand for the manufacturer’s products.

4. Distribution and Logistics

Wholesalers handle the distribution of goods to various retailers, saving manufacturers the time and expense of establishing a broad distribution network.

They ensure that products reach a wide market efficiently and on time.

5.Risk-Bearing

Wholesalers take on the risks associated with purchasing and storing goods. These risks include damage, theft, obsolescence, or changes in demand.

This shields manufacturers from potential losses related to unsold inventory.

6. Credit Facilities

Wholesalers often provide manufacturers with immediate payment for goods purchased, even if the wholesalers sell them to retailers on credit.

This improves the manufacturer’s cash flow and working capital.

7. Promotional Support

Some wholesalers assist in promoting the manufacturer’s products by offering discounts, advertising, and point-of-sale materials to retailers.

This increases product visibility and demand.

8. Specialization and Expertise

Wholesalers specialize in specific products or industries, which allows them to provide manufacturers with insights into niche markets.

Their expertise ensures efficient distribution and better customer satisfaction.

By providing these services, wholesalers allow manufacturers to focus on their core competencies—product development and production—while ensuring their products are effectively distributed to the market.

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8. What are the services offered by retailers to wholesalers and consumers?

Ans:

Retailers serve as an important link between the producers and final consumers in the distribution of products and services to the consumers, wholesalers and manufacturers. Some of the important services of retailers are described as below:

Services to wholesalers

The invaluable services that the retailers render to the wholesalers and producers are given as here under:

Help in distribution of goods
Personal selling
Enabling large-scale operations
Collecting market information
Help in Promotion

Services to Consumers

Some of the important services of retailers from the point of view of consumers are as follows:

Regular available of products
New product information convenience in buying
Wide selection
After-sales services
Provide credit facilities

Long Answer Questions

Itinerant traders have been an integral part of internal trade in India. Analyse the reasons for their survival in spite of competition from large scale retailers.

Ans:

Some of the most common types of itinerant retailers operating in India are as below:

Peddlers and hawkers: peddlers and hawkers are probably amongst the oldest form of retailers in the market place who have not lost their utility even during the modern times. They are small producers of petty traders who carry the products on a bicycle, a hand cart, a cycle-rickshaw to place to sell their merchandise at the doorstep of the customers.

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 Saturday, and so no. 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 group of customers and deal I low-priced consumer items of daily use.
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.
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 form 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.

2. Discuss the features of a departmental store. How are they different from multiple shops or chain stores.

Ans:

Departmental stores

A modern departmental store may provide all facilities such as restaurant, travel and information bureau, telephone booth, rest-rooms, etc. as such they try to provide maximum service to higher class of customers for whom price is of secondary importance.
These stores are generally located at a central place in the heart of a city, which caters to a large number of customers.
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.
A departmental store combines both the functions of retailing as well as warehousing. They purchase directly from manufacturers and operate help in eliminating undesirable middlemen between the producers and the customers.

Chain stores or multiple shops: chain stores of multiple shops are networks of retail shops that are owned and operated by manufactures 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 standardized and branded consumer products, which have rapid sales turnover. These shops are run by the same organization and have identical products and displays. Some of the important features of such shops may be described as follows;

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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 then attracting them to a central place.
The manufacturing/procurement of merchandise for all the retail office. From where the goods are dispatched to each of these shops according to their requirements. This result in savings in the cost of operation of these stores.
Each retail shop is under the direct supervision of a Branch Manager, who is help 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 requirements of the stock.
All the branches are controlled by the head office, which is concerned with formulating the policies and getting them implemented.

3. Why are consumer cooperative stores considered to be less expensive? What are its relative advantages over other large scale retailers?

Ans: Consumer cooperative stores are considered less expensive primarily because they operate on the principle of mutual benefit rather than profit maximization. Here’s why and what advantages they have over other large-scale retail outlets:

Why Consumer Cooperative Stores Are Less Expensive:

Non-Profit Motive: These stores aim to provide goods at fair prices to their members rather than making profits.
Bulk Purchasing: They purchase goods in bulk directly from manufacturers or wholesalers, reducing intermediary costs.
Lower Operating Costs: The management and operations are often handled by members or elected representatives, reducing administrative expenses.
Return of Surplus: Any surplus earnings are either reinvested or distributed among the members as dividends, reducing costs for the consumers.

Relative Advantages Over Large-Scale Retail Outlets:

Member Ownership: Members have a say in the management and decision-making, ensuring that their interests are prioritized.
Fair Pricing: Prices are generally lower due to the absence of profit margins, benefiting consumers directly.
Community-Oriented: These stores are often community-based, promoting local economies and fostering a sense of mutual cooperation.
Transparency: Operations are transparent, and members are regularly informed about financial matters and decisions.
Reduced Exploitation: As they are member-driven, there’s minimal scope for exploitation in pricing or quality.
Local Employment: They provide employment opportunities within the community, contributing to local development.
In contrast, large-scale retailers often focus on maximizing profits, which can lead to higher prices and less member-focused decision-making.

4. Imagine life without your local market. What difficulties would a consumer face if there is no retail shop?

Ans: If there were no retail shops, consumers would face significant difficulties, such as:

1. Limited Access to Goods

Consumers would struggle to buy daily essentials like food, groceries, and household items, as they rely on local markets for convenience. Emergency purchases would be nearly impossible without a nearby shop.

2. Higher Costs

Without retail shops, consumers might need to buy directly from manufacturers or wholesalers, which often require bulk purchases, leading to higher costs.

3. Inconvenience

Retail shops offer products in small, manageable quantities. Without them, consumers would need to travel long distances or rely on online platforms, which might not always be feasible.

4. Lack of Personalized Services

Local shops often provide advice, recommendations, and credit facilities. Without them, consumers miss out on this personalized touch.

5. Digital Divide

Consumers without access to online shopping platforms would face difficulties acquiring essential goods, particularly in rural or underdeveloped areas.

6. Impact on Community

Retail shops act as community hubs, fostering relationships. Their absence could lead to a loss of social interaction and communal support systems.

The absence of retail shops would lead to logistical, financial, and social challenges for consumers, impacting their quality of life.

5. Explain the usefulness of mail orders housed. What type of products are generally handled by them? Specify.

Ans:

Usefulness of Mail Order Houses

Mail order houses serve as a convenient and efficient method of shopping, especially for consumers who prefer not to visit physical stores or live in remote areas. They operate through catalogs, advertisements, or online platforms, providing goods directly to customers’ doorsteps.

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Benefits:

Accessibility: Enables people in rural or isolated areas to access a wide range of products.
Convenience: Shopping can be done anytime, eliminating the need for store visits.
Cost Savings: Often eliminates intermediaries, reducing costs for customers.
Product Variety: Offers a broad selection of products compared to local stores.
Targeted Shopping: Consumers can browse specific items without distractions.

Types of Products Handled by Mail Order Houses

Mail order houses generally deal with products that are:

Durable and Non-Perishable: Electronics (phones, cameras, small appliances), Furniture and home furnishings
Standardized Goods: Ready-made garments, Shoes and fashion accessories
Specialty Items: Hobbies and crafts, Jewelry and collectibles
Books and Media: Textbooks, novels, and music CDs/DVDs
Household and Lifestyle Products: Cookware, Beauty and skincare products
Tools and Equipment: Gardening tools,Sports gear

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