Business, Trade and Commerce

Business is considered an economic activity because it is undertaken with the objective of earning money or livelihood and not out of love, sympathy or other emotions.

Business contributes to the economic development of a country in many ways. It supplies goods and services needed by people, creates employment, promotes trade and commerce, and leads to the growth of supporting activities like transport, banking, insurance, communication and warehousing. It also helps in the development of industry, encourages investment and capital formation, and generates income and surplus that can be used for further expansion. In ancient India, business and trade contributed greatly to prosperity, and even today business remains a major force in the growth of the economy.

The chapter says that economic activities are divided into three categories: business, profession and employment.

Business means being busy in a specific sense. It is an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with the motive of earning profit.

Business activities are classified into two broad categories: industry and commerce. Industry deals with production or processing, while commerce deals with exchange and auxiliaries to trade.

Industries are divided into three broad types: primary industries, secondary industries, and tertiary industries.

Two auxiliaries to trade are:

1. Transport: It removes the hindrance of place by moving goods from the place of production to the market or consumers. It also helps in moving raw materials to factories.
2. Banking: It removes the hindrance of finance by providing funds through loans, advances, overdraft and cash credit facilities. Business firms can use these funds for buying assets, raw materials and meeting expenses.

Profit has an important role in business. It is:

- a source of income for business persons,
- a source of finance for expansion,
- an indicator of efficient working,
- a sign of society’s approval of the business, and
- a factor that builds the reputation of the business enterprise.

Profit is essential, but it should not be the only objective because excessive focus on profit may lead to neglect of customers, employees and society.

Business risk refers to the possibility of inadequate profits or even losses because of uncertainties or unexpected events.

The causes of business risks are classified as:

- Natural causes
- Human causes
- Economic causes
- Other causes

These include events like floods, earthquakes, dishonesty, strikes, changes in demand, competition, political disturbances and mechanical failures.

The indigenous banking system in the Indian subcontinent developed to support trading activities. Ancient trade was carried on through land and sea routes, and traders needed a safe way to transfer money over long distances. For this purpose, instruments like Hundi and Chitties were used. A Hundi was a written document used to facilitate transfer of money from one person to another. It reduced the risk of theft and robbery during travel and helped trade grow safely.

As trade expanded, credit transactions, loans and advances increased. Surplus income from trade was used for further investment, which led to the growth of indigenous banking. Later, commercial and industrial banks developed to finance trade and commerce, and agricultural banks came up to provide loans to agriculturists. Thus, the banking system grew alongside trade and supported the prosperity of ancient India.

Business is an economic activity involving the production and sale of goods and services undertaken with a motive of earning profit by satisfying human needs in society.

Its important characteristics are:

1. Economic activity — done for earning livelihood or money.
2. Production or procurement of goods and services — goods are either manufactured or acquired for sale.
3. Sale or exchange — goods and services are transferred for value.
4. Regularity — business involves dealings on a regular basis.
5. Profit earning — profit is the main motive.
6. Uncertainty of return — profit is not fixed or guaranteed.
7. Element of risk — business involves risk due to changes, accidents, competition, etc.

Business, profession and employment differ in these ways:

- Mode of establishment: Business begins by entrepreneur’s decision; profession needs membership of a professional body; employment begins through appointment and service agreement.
- Nature of work: Business provides goods and services; profession gives personalised expert services; employment means working according to service contract.
- Qualification: Business needs no minimum qualification; profession requires special qualifications and training; employment needs qualifications prescribed by the employer.
- Reward: Business earns profit; profession gets fee; employment gets salary or wages.
- Capital: Business needs capital; profession needs limited capital; employment needs no capital.
- Risk: Business has uncertain profit and risk; profession has regular fee with some risk; employment has fixed pay with little or no risk.
- Transfer of interest: Possible in business with formalities; not possible in profession and employment.
- Code of conduct: Profession has a code of conduct; employment follows employer’s rules; business has no prescribed code of conduct.

Examples are shop or factory for business, legal/medical profession for profession, and bank or government job for employment.

Industry refers to economic activities connected with the conversion of resources into useful goods. It includes activities involving mechanical appliances and technical skills, and also breeding and raising of animals.

Industries are of three types:

1. Primary industries — concerned with extraction and production of natural resources and reproduction of living organisms.
- Extractive industries: farming, mining, lumbering, hunting, fishing.
- Genetic industries: seed and nursery companies, cattle breeding, poultry farms, fish hatcheries.

2. Secondary industries — concerned with processing materials already extracted.
- Manufacturing industries: oil refinery, cement, sugar, paper, television, car, computer.
- Construction industries: buildings, dams, bridges, roads, tunnels, canals.

3. Tertiary industries — provide support services to primary and secondary industries and to trade.
- Examples: transport, banking, insurance, warehousing, communication, packaging, advertising.