Big picture
Internal trade (domestic or home trade) is the buying and selling of goods and services within the boundaries of a country. No customs duty or import duty is involved, and payment is made in the national currency.
Goods usually reach consumers through two links: the wholesaler, who buys in bulk from manufacturers and sells in smaller lots to retailers, and the retailer, who sells in small quantities to consumers. This chapter covers what each does, the many types of retailers, and the basics of GST, which affects all internal trade.
Learning goals
Explain internal trade and its types.
Explain the services of wholesalers to manufacturers and to retailers.
Explain the services of retailers to manufacturers or wholesalers and to consumers.
Explain itinerant and fixed-shop retailers.
Explain large-scale retail formats and compare departmental stores and chain stores.
Explain the key features of GST.
Core ideas
1. Internal trade
Type | Meaning |
|---|---|
Wholesale trade | Buying in large quantities from producers and selling in smaller lots to retailers or industrial users |
Retail trade | Selling in small quantities directly to the final consumers |
2. Services of wholesalers
To manufacturers
Service | Explanation |
|---|---|
Facilitating large-scale production | Wholesalers place bulk orders, so manufacturers can produce on a large scale |
Bearing risk | They buy in their own name and bear risks of price fall, damage and deterioration |
Financial assistance | They often pay cash for goods, giving manufacturers working capital |
Expert advice | They share information about customer tastes, competition and market conditions |
Help in marketing | They distribute goods to many retailers in a wide area |
Facilitating continuity | They keep production going by buying regularly |
Storage | They store goods until they are needed, saving manufacturers storage costs |
To retailers
Service | Explanation |
|---|---|
Availability of goods | Retailers get goods from many producers in one place without stocking large quantities |
Marketing support | Wholesalers advertise and promote goods, increasing demand |
Grant of credit | They sell to retailers on credit |
Specialised knowledge | They inform retailers about new products and market trends |
Risk sharing | Retailers buy in small lots, so they bear less risk of price fall and storage |
3. Services of retailers
To manufacturers and wholesalers: help in distribution of goods to a large number of consumers; personal selling, explaining products to buyers; enabling large-scale operations; collecting market information on consumer tastes; and help in promotion through displays and in-store offers.
To consumers
Service | Explanation |
|---|---|
Regular availability of products | Goods are available close to consumers when needed |
New products information | Retailers tell consumers about new products and their features |
Convenience in buying | Small quantities, near home, at convenient hours |
Wide selection | A variety of brands and prices in one place |
After-sales services | Home delivery, supply of spare parts, attending to customers |
Credit facilities | Regular customers may be given credit |
4. Types of retailers: itinerant retailers
Itinerant retailers have no fixed place of business; they move from place to place.
Type | Features |
|---|---|
Peddlers and hawkers | Carry goods on a bicycle, cart or their head, selling door to door; deal in low-priced items like toys, vegetables and fruits |
Market traders | Open shops at different places on fixed days (weekly markets, haats) |
Street traders (pavement vendors) | Sell at busy places such as railway stations and bus stands, on footpaths |
Cheap jacks | Have temporary shops in a locality, changing location when business falls; sell low-priced goods and repair services |
5. Types of retailers: fixed-shop retailers
Small-scale fixed shops
Type | Features |
|---|---|
General stores | Sell a variety of daily-use products in residential areas, often on credit |
Single-line stores | Deal in one line of products, such as clothes or shoes |
Specialty stores | Sell a specific type of product within a line, such as only children's clothes |
Street stall holders | Small stalls at street crossings selling cheap items |
Second-hand goods shops | Sell used goods such as furniture and books at low prices |
Large-scale retailers
Departmental stores: a large establishment with many departments under one roof, each selling a particular line of products, so customers can buy almost everything in one place.
Merits | Limitations |
|---|---|
Attracts a large number of customers | Lack of personal attention |
Convenience: everything under one roof | High operating costs |
Better services (restaurants, rest rooms, delivery) | Higher prices because of high costs |
Advantages of large-scale purchases | Possibility of loss, given high costs |
Promotion of sales through advertising | Usually located in central areas, inconvenient for some buyers |
Chain stores (multiple shops): a network of retail shops owned and operated by the same organisation, selling similar products in similar style, located in different localities.
Merits | Limitations |
|---|---|
Economies of scale in buying centrally | Limited selection (only the chain's own products) |
Elimination of middlemen | Lack of initiative by employees, who follow head office instructions |
No bad debts (sales usually in cash) | Lack of personal touch |
Benefit to consumers through uniform prices and quality | Difficult to change product lines |
Diffusion of risk across shops | |
Low cost (central management) | |
Flexibility: unsold goods can be moved between branches |
Departmental stores and chain stores compared
Basis | Departmental store | Chain store (multiple shops) |
|---|---|---|
Location | Central location | Shops in many localities |
Range of products | Variety of products under one roof | Limited range, usually one line |
Services | Many services (restaurants, delivery) | Limited services |
Pricing | Prices may vary between departments | Uniform prices across all branches |
Class of customers | Higher income groups | Different types of customers |
Credit | May offer credit | Sales mostly in cash |
Flexibility | Little flexibility in product lines | Some flexibility |
Mail order houses: retail through the post or courier, without personal contact. Orders come through advertisements and catalogues; goods are sent by post, often as value-payable post (the customer pays on delivery). Suitable for goods that are graded, standardised and easy to transport. Online retailers have largely replaced them.
Consumer cooperative stores: owned, managed and controlled by consumers themselves to eliminate middlemen and supply goods at fair prices. Profits are shared among members in proportion to their purchases.
Supermarkets: large retail stores selling a wide range of consumer goods (food, groceries, household goods) on a self-service basis, at low prices, usually for cash.
Vending machines: coin-operated or digital-payment machines selling pre-packed products such as soft drinks, snacks and tickets. They offer round-the-clock convenience, but have high installation and maintenance costs.
6. Goods and Services Tax (GST)
GST, introduced on 1 July 2017, is a single, comprehensive, destination-based indirect tax on the supply of goods and services across India. It replaced many central and state taxes such as excise duty, service tax, VAT, entry tax and octroi.
Key features
Dual GST: the centre levies CGST and the states SGST (or UTGST) on supplies within a state; IGST is levied by the centre on inter-state supplies and imports.
Destination-based tax: tax revenue goes to the state where goods or services are consumed.
Input tax credit: businesses can set off tax paid on purchases against tax on sales, removing the cascading effect (tax on tax).
Multiple rate slabs for different goods and services, with essential items taxed lower.
GST Council: a body of the Union and state finance ministers that decides rates and rules.
Online system: registration, returns and payments through the GST Network (GSTN) portal.
Benefits for internal trade: a common national market ("one nation, one tax"); free movement of goods across states, as check posts and entry taxes are removed; lower logistics costs; and simpler compliance.
A reliable approach to case-based questions
Decide whether the seller buys in bulk and sells to retailers (wholesaler) or sells to consumers (retailer).
For itinerant traders, look for movement: door to door (hawkers), weekly market (market traders), footpath at busy spots (street traders), temporary shop moving every few months (cheap jacks).
For large stores: many departments under one roof (departmental store), many branches with uniform prices (chain store), self-service with low prices (supermarket), owned by consumers (cooperative store).
For GST, decide whether the supply is within a state (CGST and SGST) or between states (IGST).
Connections that matter
Evolution and fundamentals of business introduced trade as part of commerce.
Emerging modes of business shows how e-commerce is changing retail.
Class 11 accountancy: theory base explains GST accounting and input tax credit.
Common mistakes
Saying wholesalers sell to final consumers. They sell to retailers or industrial users.
Confusing departmental stores and chain stores. A departmental store is one big store with many departments; a chain store is many small stores with the same products.
Calling cheap jacks itinerant hawkers. Cheap jacks have temporary fixed shops that they shift from time to time.
Saying GST is collected by the state where goods are produced. It is destination-based.
Revision checklist
I can explain wholesale and retail trade and the services of each.
I can explain the four types of itinerant retailers and the small fixed-shop retailers.
I can explain departmental stores, chain stores, mail order houses, cooperative stores, supermarkets and vending machines.
I can compare departmental stores and chain stores.
I can explain the key features of GST.