Ch:10 – Internal Trade


Trade means buying and selling of goods, which involves the exchange of commodities for money or money’s worth. On the basis of scale of operation, internal trade can be divided into Wholesale trade and Retail trade.

A. Wholesale Trade

It implies that the buying and selling in large quantities. A wholesaler buys goods directly from the producers and sells them to the retailers. One who deals in wholesale trade is known as wholesaler or wholesale dealer.

Services of Wholesalers to manufacturers / producers

1. Facilitating large scale production – Bulk orders from wholesalers enable to produce in large quantity.

2. Bearing risk – They purchase the entire goods immediately on production, so that they take the risk of change in demand, spoilage, damage, theft etc. during transportation and storage.

3. Financial assistance – Wholesalers purchase on cash basis and sometimes they may

give advance payment for bulk purchases.

4. Expert advice – Wholesalers are in constant touch with the retailers, they can collect information about the tastes and fashion of consumers and passes it on to producers.

5. Helps in marketing – Wholesalers take care of distribution of goods, market research, transportation, warehousing etc.

6. Facilitates continuity of production – Wholesalers purchase goods on a real time basis as and when they produce goods. It helps the manufacturers to carryout continuous production.

7. Storage – The burden of storing goods passes to the wholesalers.

Services to Retailers

1. Availability of goods – Retailers get goods as and when they required as there is a

large quantity stored by wholesalers.

2. Marketing support – Wholesaler takes all the burden of advertisement and sales promotion activities, and the retailer enjoys the benefit.

3. Providing credit facilities – It enables the retailers to conduct their business without much investment in working capital.

4. Specialized knowledge – Wholesalers can give expert advice on their products as they are dealing only a limited line of goods. They also inform the retailers about new products, their uses, quality, prices etc.

5. Risk sharing – The risk of retailers gets reduced as most of the burden of marketing

such as price fluctuation, loss of goods in transit, storage etc. is born by the wholesalers.

B. Retail Trade

It involves buying and selling of goods in small quantities. A retail trader buys

goods from the wholesalers and sells them to the customers. In other words, retail trade includes all activities directly related to sale of goods or services to ultimate consumers for consumption.

Services of Retailers to Manufacturers / Wholesalers

1. Helps in distribution – Retailers help in distribution of goods to the ultimate consumers who are scattered over the world.

2. Personal selling – Most of the consumer goods requires personal selling, wholesalers and producers are free from this task as it is undertaken by the retailers.

3. Large scale operations – Manufacturers and wholesalers are free from the trouble of making individual sales to consumers in small quantities. This enables them to operate on large scale.

4. Collecting market information – Since the retailers are in constant touch with the

consumers, they can collect reliable market information, which can be passed to the

wholesalers and manufacturers.

5. Help in sales promotion – Retailers also undertake advertisement and other sales

promotion activities to increase their sales, which in turn will be benefited to the

wholesalers and manufacturers in promoting the sales of their products.

Services to Consumers

1. Regular availability of products – Most often the retailers holds sufficient stock of

goods from various producers and wholesalers. This ensured ready and regular supply

of goods.

2. New products information – By arranging proper display and through personal selling efforts, the retailers provide relevant information about the new products and their features to the consumers.

3. Convenience in buying – Retailer sells goods in small quantities and they have set up their stores in residential areas which are very near to the consumers.

4. Wide selection – The retailer has a large variety of goods from different manufactures.

5. Provide credit facilities – The retailers often provide credit facilities to regular and

trusted customers.

Types of Retail Trade

1. Itinerant Traders – These types of traders are having no fixed place of business, they

may include vendors like hawkers, street traders etc.

2. Fixed shop retailers – They maintain permanent shops or stores to sell their goods.

Characteristics of Itinerant Retailers

a. Small scale operation – due to limited resources.

b. Deal in consumer products – Usually they deal in consumer goods of daily use. Eg:

Fruits, vegetables, fish, stationery etc.

c. Door step service – They provide goods at the door step of the consumers.

d. Limited stock – As they have no fixed place to operate, they do their business with

limited stock only.

Kinds of Itinerant Traders

1. Hawkers and Peddlers – Hawkers are the traders who carry their products on carts or bicycles, while peddlers carry their products on their back or head or in baskets or shoulder bags.


a. Generally dealing non-standardized and low value goods.

b. Operates mainly on streets of residential areas, exhibition grounds, public places etc.

c. Supply the goods at the door step of the consumers.

2. Market Traders – These traders sell their articles on fixed days in different market



a. They deal in one particular line of goods. Eg: toys, garments, crockery etc.

b. Sell products on fixed days in the market.

c. Dealing in Low priced goods.

d. They move from one market to another.

3. Street Traders / Pavement Traders – These traders generally arrange their articles at busy street corners, near railway stations etc.


a. They sell consumer items of daily use.

b. Generally operates near public places.

c. Do not change their places of business frequently.

4. Cheap Jacks – They usually, hire small shops for a short period of time. Depending upon the scope of sale they keep shifting from one locality to another.


a. They deal in consumer items.

b. Also provide services like repairing watches, shoes, buckets etc.

c. Move from one area to another depending on sales potential.

d. They sell goods in temporary sheds during festivals.

Fixed Shop Retailers

These retailers are those who carry on business by maintaining a fixed place of business to sell their goods. They do not move from one place to another. Depending upon the size of operations, they can be of two types, such as Small scale Retailers and Large scale retailers.


a. Large resources – They have a lot of goods compared to itinerant traders.

b. Deal in different products – They deal consumer goods, both durables and non-


c. Credibility – They have greater credibility in the minds of consumers as they provide

services like home delivery, guarantees, repairs, credit facility etc.

Types of Fixed Shot Retailers:

1. Small Scale Retailers

They are running their business on a small scale and deal in a limited line of goods.

a. General Stores – They are selling all general items of goods such as groceries, stationery, oils, etc. Customers can buy most of their requirements at one place. They may also provide free home delivery, credit facilities etc. to regular customers.


 They stock variety of goods for day to day requirement.

 Open for long hours based on the convenience of consumers.

 Provide credit facilities to regular customers.

 Located near residential area.

 Provide service like home delivery etc.

b. Specialty Shops- They are specialized in a single product of a certain line. Also known as Single Line Stores. E.g. kids wear shop, computer shop etc.


 Specialize in one product only. Eg: Kids wears, Men’s wear, Book shop,electronics etc.

 Located in central places.

 Keep all brands of a particular product.

c. Street Stall Holders – They are generally located at street crossings or in the main

street. They usually display their goods on a table, stand or by fixing a shelf on the



 Deal in cheaper goods. Eg: toys, soft drinks, hosiery items etc.

 They mainly attract floating customers.

 The stall is housed in very small area.

 Found in high customer traffic area.

d. Second hand goods shop – They are dealing in second hand goods such as books,

furniture, clothes, used cars and other household items.


 Usually found in busy streets.

 Helpful for low income group.

 They often sell antique items and rare object of historical value.

2. Large Scale Retailers

Large scale retailing may be defined as retail trade involving

operations on a large scale and sale of goods in small quantities.

They are of different types:-

a. Departmental Stores– A departmental store is a large scale retail shop selling a wide variety of goods in different departments under one roof and one management. Each department deals in separate line of goods like stationery, books, furniture, clothing, footwear etc.


• They provide additional facilities like restaurant, telephone booth, rest room, play area etc.

• Usually located in central place of a big city.

• It is a large scale retail organization, generally formed as joint stock companies.

• Elimination of middlemen – They are making their purchases directly from the producers.

• Centralized purchases and decentralized selling.


• Central location attracts more and more customers.

• Shopping convenience to the customers as they get different products under one roof.

• Consumer services are provided like free home delivery, telephone facilities,

restaurants, rest rooms etc.

• Economies of large scale operation in the matter of transportation, advertising,

purchase etc.

• Automatic mutual advertisement – One department advertises the other.


• Lack of personal attention – as they have to handle a very large number of customers


• High Operating Cost – due to heavy rent, salaries of experts etc.

• High possibility of loss – They incur high loss due to change in taste and fashion of

consumers, as they have a large quantity of stock.

• Inconvenient Location – The central location of the store make it inconvenient for the

consumers who reside away from it, also it suffers from traffic problems and parking


• Huge investment – It requires heavy investment for establishment and maintenance.

b. Multiple Shops or Chain Stores – It is a system of branch shops operated under a centralized management and dealing in similar line of goods. Branches of the shop are located throughout the nation under the same name and management and they specialize in one or two lines of goods.

Multiple shops are organized by the manufacturers to eliminate middlemen. In a multiple shop there is uniformity in advertisement, window display and interior display of goods etc.

e.g. Bata shoe company, Bombay Dyeing Show Rooms, Big Bazar, Coffee Day, Raymonds, KFC etc.


• Convenient location for consumers.

• Centralized buying and decentralized selling.

• Centralized management and unified system of control.

• Follows cash and carry principle.

• Uniformity in shop’s design and lay-out.

• Proper inspection from head office ensures the smooth functioning.


• Economies of large scale buying – Centralized purchase attracts higher discount, low

transportation cost, common advertisement etc.

• Elimination of middlemen – Direct bulk purchase from producers.

• No bad debts – They follow cash and carry system.

• Diffusion of risk – Loss in one shop may be compensated by the profits in other shops.

• Low cost – Low cost of operation because of economies of scale.

• Flexibility – Unprofitable branches can be shifted to somewhere else.


• Limited choice – as they deal in one or two lines of goods.

• Lack of initiative and motivation – Due to centralized control, there is only less chance for initiatives from the part of the branch managers.

• No personal contact due to large scale operations.

• Risk due to change in taste and fashion lead to great loss.

c. Mail Order Houses – It is a form of retailing where the business transactions are done through post or by mail. There is not direct personal contact between the buyer and the seller. Under this system, receipt of orders, delivery of goods and payment etc. are done through the mail. E.g. VPP (Value Payable Post). This system is also called shopping by post.

Mode of operation

1. Giving advertisement in various media.

2. Preparing a mailing list of prospective customers. (Data may be collected from telephone directories, social media etc.)

3. Approaching the prospective customers by sending circulars, catalogues etc. by post.

4. Receiving of orders from customers.

5. Execution of orders by sending the goods through post office.

6. Receiving payment – It may be in different forms such as advance payment at the time of placing orders, VPP or payment through bank.

Suitability of goods for mail order business

1. Graded and standardized goods.

2. Easily transported at low cost. Eg: light in weight.

3. Goods having ready demand in the market.

4. They should be available in large quantity throughout the year.

5. Goods which are having least competition in the market.

6. Goods which are not available in the local market.


• Limited capital – It does not require huge buildings, furniture etc.

• Elimination of middlemen – Hence the cost of operation is minimized

• No bad debt – No credit facilities are allowed to customers.

• Wide reach – The area of operation is not limited.

• Convenience in buying – i.e. delivery of goods are made at the door steps.


• No personal contact – Customers do not have a chance to examine the products.

• High promotion cost – Heavy expenses on advertising.

• No after-sales service.

• No credit facilities.

• Delay in delivery.

•Possibility of abuse – Dishonest traders may cheat the customers.

•High dependence on postal services – Success of the business depends on the efficiency of postal department.

d. Consumers’ Co-operative Stores – It is a retail store formed and run by consumers on co- operative principles. These stores are owned and managed by consumers so as to make goods available at a reasonable price. They are dealing in all types of consumer goods of daily use such as grocery, stationery, dress materials etc.

The capital is raised by the issue of shares to the members and the management is vested in the hands of Board of Directors. It should be registered under the Co-operative Societies Act.


•Easy to form – Any ten people may come together and form a society with limited formalities.

•Limited liability – Liability of members is limited.

•Democratic management – It is based on democratic principles.

•Low price – by eliminating middlemen.

•Cash sales – No chance for bad debt due to cash and carry system.

•Convenient location – Usually set up in public places.


•Lack of initiative – The persons who manage and work on honorary basis may not

take much initiative for the success of business.

•Shortage of funds – Difficulty in raising capital.

•Lack of patronage – All members may not be in touch with the organization regularly.

•Lack of training and expertise in management.

e. Super Bazaar (Super Market) – It is also a large scale retail store selling a wide variety of consumer goods. The most distinctive feature is the absence of salesmen and shop assistants to help the customers in selecting the goods. Hence they are also called ‘Self Service Stores’.

Various products are arranged in well marked divisions or departments on open shelves.They are neatly packed and the weight, price, quality etc. are marked on the packets.Customers pick the required products and place them on baskets or wheeled trolleys etc.and are placed at the counter where the goods are billed and payment is made.


• Wide variety – Buyers can purchase a wide variety of products under one roof.

• Self service – Super markets functions on the principle of self service which results in lower operating cost.

• Low price – Because of bulk purchase and lower operating cost, they can sell their products at low price than other retail shops.

• Cash basis – This feature helps them to eliminate bad debts.

• Centrally located – Generally located at central place of a city.


• One roof and low cost – This convenient as well as economical to the buyers.

• Central location – So that it is easily accessible to the people.

• Wide selection – They offer wide variety of goods from different producers.

• No bad debt – They follow cash and carry system.

• Economies of large scale – It enjoys the benefits of large scale operations.


• No credit – It restricts the purchasing power of consumers.

• No personal attention – Due to the absence of salesmen, the items which need personal attention may not be sold out.

• Mishandling of goods – Consumers may handle the goods kept in the shelves carelessly.

• High overhead expense – High rent due to prime location, heavy administrative cost etc.

• Huge capital requirement – Establishment and running cost is relatively high.

f. Vending Machine – These are coin operated machines found very suitable in selling

products like hot beverages, platform tickets, soft drinks, newspaper etc. ATM (Automated Teller Machine) is also a vending machine in banking business.

They are suitable for selling pre-packed items of low priced products, with uniform size and weight. Initial cost of the machine, maintenance charges etc. are high. Another drawback is that the consumers cannot see the product before buying. No return of goods is possible.

Goods and Service Tax (GST)

Introduced by Government of India – 1 st July 2017 – One Nation One Tax – It is a destination based single tax on the supply of goods and services from the manufacturer to the consumer –Replaced multiple taxes levied by central and state governments – Reduced tax burden by eliminating tax on tax – GST consists of CGST and SGST, which are applicable in case of intra- state supply of goods and services and IGST in case of inter-state supply of goods and services – Tax liability arises when the taxable person crosses the limit of 20 lakhs turn over per year.

Key Features of GST

a. GST is applicable to the whole country including Jammu and Kashmir.

b. It is a destination based consumption tax.

c. IGST is applicable for imported goods and services.

d. CGST, SGST and IGST are levied at rates mutually agreed by the Centre and the State based on the recommendations of GST Council.

e. There are four tax slabs: 5%, 12%, 18% and 28%

f. Export and supplies to SEZ are zero-rated.

g. Tax payer can remit the tax amount through different payment gateways such as Net

Banking, Debit/Credit Card, NEFT (National Electronic Fund Transfer) and RTGS (Real

Time Gross Settlement.

Role of Commerce and Industry Association in promotion of Internal Trade

The Chambers of Commerce and Industry was formed as an association of business and industrial houses to promote and protect their common interest and goals.

Eg.CII (Confederation of Indian Industry), FICCI (Federation of Indian Chambers of Commerce and Industry), ASSOCHAM (Associated Chamber of Commerce and Industry) etc. They play an important role in strengthening internal trade and overall economicactivity. Some of their roles are:

• Helps in many activities relating interstate movement of goods.

• To ensure that octroi and other local levies are charged reasonably.

• Helps in harmonization of GST and VAT (Value Added Tax).

• Helps in marketing of agro products and related issues.

• Interacting with the government to take action against those who violates rules relating to weights and measures and prevention of duplication of brands.

• Promoting sound infrastructure etc.

• Interact with the government on issues of labour laws.