Internal Trade

Internal Trade

Internal Trade refers to the buying and selling of goods and services within the geographical boundaries of a country. It is also known as home trade or domestic trade.

Internal trade is a vital component of commerce, facilitating the distribution of goods from producers to consumers across different regions within the nation. It involves a network of middlemen who operate at various levels to bridge the gap between manufacturers and final buyers.

Internal trade can be broadly divided into two main categories:

1. Wholesale Trade: Buying goods in large quantities from manufacturers or producers and selling them in smaller quantities to retailers.
2. Retail Trade: Buying goods from wholesalers or manufacturers and selling them in small quantities directly to the final consumers.

These two branches, along with the intermediaries involved, form the distribution channel for most goods within a country.

Wholesale Trade

A Wholesaler is a person or firm who buys goods in large quantities from manufacturers or producers and sells them in smaller quantities to retailers. Wholesalers act as a link between manufacturers and retailers.

Wholesale trade involves selling goods to parties who intend to resell them or use them for business purposes, rather than for final consumption.

Services To Manufacturers

Wholesalers provide several valuable services to manufacturers:

1. Facilitating Large Scale Production

By buying goods in bulk from manufacturers, wholesalers enable manufacturers to produce on a large scale without worrying about storing or selling small quantities to numerous retailers.

2. Bearing Risk

Wholesalers purchase goods and hold them in their warehouses. They bear risks associated with storage, such as deterioration, obsolescence, theft, and price fluctuations, reducing the burden on the manufacturer.

3. Providing Financial Assistance

Wholesalers often pay manufacturers in advance or make prompt payments for goods purchased. This provides financial support to manufacturers and reduces their need for working capital.

4. Expert Advice

Wholesalers are in direct contact with retailers and the market. They can provide valuable feedback to manufacturers regarding customer preferences, market trends, quality of goods, etc.

5. Helping in Marketing Function

Wholesalers take responsibility for distributing goods to retailers scattered over a wide area, thus relieving the manufacturer from this complex task.

6. Facilitating Continuity

By purchasing goods as soon as they are produced, wholesalers ensure a continuous flow of production for the manufacturer.

7. Storage

They store goods in their warehouses, saving the manufacturer from maintaining large storage facilities.

Services To Retailers

Wholesalers also provide essential services to retailers:

1. Availability of Goods

Wholesalers maintain a large stock of different varieties of goods. Retailers can easily procure goods from them as and when required without having to contact manufacturers individually.

2. Relief in Capital Requirement

Retailers can buy goods in small quantities from wholesalers as per their needs, reducing the amount of capital they need to tie up in inventory. Wholesalers also often extend credit facilities to retailers.

3. Facilitating Retailers

Wholesalers often provide guidance and advice to retailers regarding new products, market conditions, sales techniques, and decoration of shops.

4. Knowledge of Market

Wholesalers collect market information from manufacturers and pass it on to retailers, helping them understand market trends and consumer demand.

5. Risk Sharing

By maintaining large stocks, wholesalers absorb many risks (like price changes, spoilage), allowing retailers to operate with smaller inventories and reduced risk.

Despite the rise of direct marketing and large-scale retailing, wholesalers continue to play a significant role in the distribution of goods, especially for scattered markets and small retailers.

Retail Trade

Retail Trade involves the sale of goods and services directly to the final consumers for their personal, non-business use. A person or firm engaged in retail trade is called a Retailer.

Retailers are the last link in the distribution channel, connecting wholesalers or manufacturers with the final consumers.

Services To Manufacturers And Wholesalers

Retailers play an important role in the distribution process and provide services to manufacturers and wholesalers:

1. Help in Distribution of Goods

Retailers are scattered across different locations and are easily accessible to consumers. They ensure the wide distribution of goods to the final buyers.

2. Personal Selling

Retailers often engage in personal selling, explaining the features and uses of products to customers, influencing their buying decisions.

3. Enabling Large Scale Production

By purchasing goods from wholesalers and manufacturers in anticipation of consumer demand, retailers facilitate continuous production on a larger scale.

4. Collecting Market Information

Retailers are in direct contact with consumers and collect valuable information regarding their tastes, preferences, needs, and reactions to new products. This information is passed on to wholesalers and manufacturers.

5. Help in Promotion

Retailers participate in promotional activities like displaying goods, arranging sales contests, and distributing samples, supporting the marketing efforts of manufacturers and wholesalers.

Services To Consumers

Retailers provide invaluable services to consumers:

1. Ready Stock of Goods

Retailers maintain a variety of goods in stock, allowing consumers to purchase products instantly as per their needs.

2. Wide Variety of Goods

They usually stock goods from different manufacturers and wholesalers, offering consumers a wide choice.

3. Convenience in Buying

Retail shops are often located near residential areas, providing convenience to consumers to buy goods without travelling long distances.

4. Credit Facilities

Many retailers offer credit facilities to their regular customers, though this trend is changing with digital payments.

5. After-Sales Services

Retailers often provide after-sales services like home delivery, installation, and minor repairs.

6. Information and Guidance

Retailers provide information about new products, their features, and uses, helping consumers make informed decisions.

Retailers are essential in making goods accessible to the final consumers and contribute significantly to customer satisfaction.

Types Of Retailing Trade

Retail trade can be broadly classified into different types based on factors like the size of the shop, ownership structure, location, and selling methods.

Itinerant Retailers (Mobile Traders)

These retailers have no fixed place of business and keep moving from one place to another to sell goods. They usually deal in goods of daily use and of low value.

• Hawkers and Pedlars: Carry goods on their heads or on carts and move from street to street.
• Hucksters: Deal in goods like fruits and vegetables and sell them from baskets or carts.
• Street Traders: Sell goods from fixed spots on streets or near public places (e.g., outside railway stations).
• Cheap Jacks: Have temporary shops in a locality and keep on shifting their business from one place to another.

They cater to consumers who prefer doorstep delivery or shop in local markets.

Fixed Shop Retailers

These retailers have a permanent place of business. They offer more stability and a wider range of goods compared to itinerant retailers.

Categories of Fixed Shop Retailers:

Fixed shop retailers can be categorised based on the size of their operations:

Fixed Shop Small Retailers

These are small shops located in markets or residential areas. They deal in a limited range of goods.

• General Stores: Deal in a variety of goods of daily use (groceries, toiletries, stationery, etc.). Convenient for customers for daily needs.
• Speciality Shops: Deal in a specific line of goods (e.g., only children's wear, only books, only mobile accessories). Offer a deep assortment within their specialisation.
• Street Stalls: Small shops or platforms on streets, often selling specific items like cigarettes, newspapers, or snacks.
• Second Hand Goods Shops: Deal in used goods like furniture, books, clothes.

These shops offer personal attention and convenience to local customers.

Fixed Shop — Large Stores

These are large retail establishments that offer a wide variety of goods, often located in commercial areas or shopping malls.

• Departmental Stores: Large retail outlets that sell a wide variety of goods, organised into separate departments. Each department specialises in a particular line of products (e.g., clothing, electronics, furniture). They aim to provide a wide range of consumer needs under one roof.
• Multiple Shops (Chain Stores): Retail shops that have a network of identical branches spread across different locations, often managed centrally. They deal in a limited range of goods, often of standardised quality and price (e.g., Bata shoe stores, national fast-food chains).
• Mail Order Houses: Retail organisations that sell goods through mail. They reach customers through advertisements, catalogues, price lists sent via post or online. Orders are also received and goods dispatched through post or courier. No physical shop is visited by customers.
• Super Markets: Large retail stores selling a wide variety of food and non-food products on the principle of low margins and high turnover. Customers select goods themselves (self-service) and pay at the counter.
• Hypermarkets: Even larger than supermarkets, combining a supermarket and a department store under one roof, offering an extremely wide range of products including groceries, clothing, electronics, furniture, etc.

Large stores offer convenience (wide variety at one place), but might lack personal service compared to small shops.

Mail Order Houses

(See description above under Fixed Shop — Large Stores, as they are a type of fixed-place retailer operating remotely).

Consumer Cooperative Store

A retail business owned and managed by consumers themselves. Members buy goods of daily use directly from producers or wholesalers and sell them to members (and sometimes non-members) at reasonable prices. The objective is to eliminate middlemen's profit and provide quality goods at lower prices.

Super Markets

(See description above under Fixed Shop — Large Stores).

Vending Machines

Automated machines that dispense products (like snacks, drinks, tickets) when cash or a card is inserted. They are convenient for selling standardised, low-value products at public places like railway stations, bus stands, and offices.

Modern retail is constantly evolving with the growth of e-commerce (online retail) and omnichannel retailing.

Goods And Services Tax (GST)

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It was implemented on 1st July 2017, replacing a large number of central and state indirect taxes like Excise Duty, Service Tax, VAT, Octroi, etc.

GST is a value-added tax applied at each stage of the supply chain, with the tax paid at previous stages available as input tax credit (ITC). The final consumer bears the GST charged by the last seller in the supply chain.

Key Features of GST:

1. Comprehensive Indirect Tax

It subsumed most of the existing indirect taxes, leading to a single tax structure.

2. Destination-based Consumption Tax

The tax is levied at the point of consumption, not origin.

3. Dual GST Structure

Administered by both the Central Government and State Governments. It has three components:

• CGST (Central GST): Levied by the Centre on intra-state (within the same state) supplies.
• SGST (State GST): Levied by the State on intra-state supplies.
• IGST (Integrated GST): Levied by the Centre on inter-state (between different states) supplies and imports. (IGST is a sum of CGST and SGST rates).

4. Input Tax Credit (ITC) Mechanism

Businesses can claim credit for the GST paid on inputs (purchases) and set it off against the GST collected on outputs (sales), avoiding cascading of taxes.

5. Tax Slabs

Different rates (slabs) are prescribed for different goods and services (e.g., 5%, 12%, 18%, 28%), besides exempted categories and special rates for some items.

6. Online Compliance

Registration, filing of returns, and payment of taxes are largely done online through the GST portal.

Impact on Internal Trade:

• Removal of State Barriers: GST eliminated check posts and other barriers at state borders, allowing for free movement of goods and services across states, facilitating seamless internal trade.
• Reduction in Logistics Costs: Faster movement of goods reduces transit times and logistics costs.
• Simplified Tax Structure: Businesses now deal with a single GST regime instead of multiple state-level taxes.
• Increased Compliance and Formalisation: The online system and ITC mechanism encourage businesses to register and comply, bringing more of the economy into the formal sector.
• Benefits of ITC: Availability of ITC across the value chain reduces the overall tax burden on businesses and prevents double taxation.

GST has significantly reformed the indirect tax system in India, streamlining internal trade and aiming to create a unified national market.

Role Of Commerce And Industry Associations In Promotion Of Internal Trade

Commerce and industry associations play a crucial role in promoting and facilitating internal trade. These associations act as collective voices for businesses, representing their interests and working towards creating a favourable business environment.

Examples of such associations in India include the Federation of Indian Chambers of Commerce & Industry (FICCI), Confederation of Indian Industry (CII), Associated Chambers of Commerce and Industry of India (ASSOCHAM), and numerous regional and industry-specific associations.

Key Roles:

1. Representing Interests

They represent the views and concerns of the business community to the government and policymakers on matters related to trade policies, taxation (like GST implementation issues), infrastructure, and regulations.

2. Policy Advocacy

They actively engage in policy advocacy, providing recommendations and feedback to the government to improve the ease of doing business, rationalise tax structures, and streamline trade procedures.

3. Facilitating Dialogue

They act as a platform for dialogue and interaction between businesses and the government, helping to resolve issues and address challenges faced by the trade sector.

4. Dissemination of Information

They disseminate information about changes in laws, policies, market trends, and business opportunities to their members, helping businesses stay updated.

5. Promoting Ethical Practices

They work towards promoting ethical business practices and fair competition among members.

6. Organising Events and Exhibitions

They organise trade fairs, exhibitions, seminars, and workshops that facilitate networking, market access, and business promotion for members across different regions.

7. Providing Support Services

Some associations provide support services like arbitration for dispute resolution, training programs, and access to market research.

By engaging in these activities, commerce and industry associations contribute significantly to creating a conducive environment for internal trade to flourish, addressing systemic issues, and empowering businesses to operate effectively within the country.