Business, Trade and Commerce

Written and reviewed by Rohit Singh, Computer Science & Commerce faculty at UniDrill (MCA, Osmania University · 6 years teaching). Based on NCERT Business Studies Class XI, Chapter 1.

Why is your tailor a business, your doctor a profession and your uncle an employee?

All three earn a living, yet CUET treats them as three different things. Meera sells millet cookies from her kitchen every day. Dr Rao treats patients under a licence from a council. Karan draws a monthly salary at a software firm. Meera takes risks and keeps the profit, Dr Rao charges a fee and follows a code of conduct, and Karan receives wages and has no say in who earns what from the product. This chapter gives you the vocabulary to sort any such person in seconds, and the map of every activity that makes up business.

Economic activity: where business sits

An economic activity is anything you do to earn a livelihood. Activities done out of love, sympathy or patriotism are non-economic. A mother cooking for her family is non-economic. The same person selling tiffins to office workers is economic.

Economic activity has three forms: business, profession and employment. Business starts with the production of goods and services and ends only when they reach the consumer and satisfy a human need. That is why a factory, a wholesaler and a delivery rider all belong to one chain, and the chain has to run for anyone to earn a rupee.

Business is an occupation in which people regularly produce or buy and sell goods and services to earn profit. The word comes from "busy": a business person is always occupied with something.

Seven characteristics of business

If an activity is missing one of these, it is not business. The list is a staple of CUET, so learn it as a set.

Why regularity matters. Suppose you sell your old radio at a profit once. That is a single transaction, not a business. Regularity, not profit, is what separates a trader from a casual seller. Students often write "profit" as the only distinguishing feature and lose the mark.

Pause and predict: Aman buys a second-hand scooter, rides it for a year and sells it at a profit. Is he in business?

Check your answer: No. He made one sale for personal reasons and did not deal in vehicles on a regular basis.

Business, profession and employment

CUET asks this comparison in almost every paper. The usual form is a match-the-column on reward, risk or qualification.

Mini case. A chartered accountant works alone in a small office and charges a fee for each audit: profession. The same person is appointed by a company as its finance manager on a monthly salary: employment. If she opens a coaching centre with hired staff and fixes fees to make a surplus: business.

Beyond the textbook. For the exam: the reward for a profession is a professional fee, and a profession is governed by a code of conduct set by a professional body. In reality: the line blurs in practice. A hospital chain with hundreds of beds is run as a business even though doctors inside it practise a profession, and the same doctors may be its employees. Why it matters: when a CUET case names a single practitioner with a certificate, answer profession. When it names an organisation run for profit, answer business.

How India's trade grew

You do not need dates for this section, but you need the sequence. Trade was the mainstay of the ancient Indian economy. It ran along two arteries: the Silk Route on land and maritime routes by sea. Cities such as Pataliputra, Taxila, Mathura, Varanasi, Ujjain, Kanchi, Madura and Surat grew around it. Surat was famous for zari, and its merchants' hundis were honoured as far away as Egypt and Iran.

Hundi and chitty. Long-distance trade needs a way to pay without carrying coins. India's answer was the hundi, a written instrument in a local language that promises unconditional payment of money and can be transferred by valid negotiation. In the south the similar instrument was called a chitty. Hundis fall into two families.

The easy way to remember the pair: Darshani = darshan = see it, pay it. Muddati = muddat = a stretch of time. Jokhmi comes from jokhim, meaning risk, so it is always a Muddati hundi.

India's share of world wealth is a recurring fact. It was about 32 per cent in the first millennium, fell to roughly 24 per cent by 1500, to about 5 to 10 per cent by 1850 and to 2 per cent by 1900, as colonial rule hurt domestic industry. After Independence came planned development, and since 1991 a three part reform of stabilisation, restructuring and globalisation. Today's policy slogans, Make in India, Skill India and Digital India, build on that reform base.

Pause and predict: A merchant in Madurai sends cotton to a port and a trader there draws a Jokhmi hundi against it. The ship sinks. Who loses?

Check your answer: The holder, who gave value against the goods. The drawee has no liability because a Jokhmi hundi is tied to the safe arrival of the goods.

Industry and commerce: the classification tree

All business activities fall into two branches. Industry deals with producing or processing goods and services. Commerce deals with moving them to the customer. Study the tree top to bottom and place each example on a leaf.

A fisherman who catches fish from the sea is extractive. A farm that hatches fish seed to supply fishermen is genetic. That one pair separates marks in many tests.

The four types of manufacturing.

A simple handle: Analytical pulls things apart, Synthetical puts things together. Students swap these two more than any other pair in the chapter.

Commerce = trade + auxiliaries to trade. Trade is the sale, transfer or exchange of goods. It can be internal or external, wholesale or retail. Auxiliaries to trade are the services that help trade happen. Commerce exists to remove six hindrances that stand between a producer and a buyer.

Mini case. Kaveri Pickles in Guntur makes mango pickle in summer but sells all year round. Warehousing holds the jars until monsoon (time). Trucks carry them to Chennai (place). Insurance covers a transit accident (risk). A bank loan buys raw mango (finance). Hoardings and a mobile app tell customers about them (information).

Beyond the textbook. For the exam: tertiary industries and the auxiliaries to trade are the same set of activities. Do not split them into two lists. In reality: economists call the tertiary group the services sector, one of the three sectors into which national income statistics split an economy. Why it matters: your answer on the classification tree stays textbook, but knowing that banking, transport and communication are all "services" lets you recognise them in any case study.

Why profit matters, and what else business aims at

Profit is the excess of revenue over cost. It matters for five reasons: it is the owner's source of income, a source of finance for growth, an indicator of efficiency, a sign of society's approval of the product, and a builder of reputation.

Profit is not the only goal. A business also pursues five other objectives.

Productivity vs profit. A firm can be highly productive and still lose money if prices fall, or earn profit with low productivity if it has no competition. These are two different measures, not synonyms.

Beyond the textbook. For the exam: profit is the reward for taking risk, and "no risk, no gain" is the textbook line. In reality: many successful firms accept lower profit for a time to win customers, as a new delivery start up might. Why it matters: for an MCQ that asks the purpose of business, profit remains the main answer. For a case that describes a short term loss to build market share, choose market standing.

Business risk

Business risk is the possibility of inadequate profit or loss because of uncertain or unexpected events. It cannot be eliminated. Careful planning and insurance only reduce it.

Risk also has four causes: natural (floods, earthquakes), human (dishonesty, carelessness, strikes), economic (price changes, demand swings, competition) and other (political disturbance, machinery failure, technology changes). These causes are not the same as the two types above, which is a common trap.

Why it matters. Insurance covers pure risks because they only cause loss. Nobody can insure against a fall in demand, because that same change could have earned a gain. When a case asks which risk a business can insure, the answer is pure risk.

Starting a business: eight factors and entrepreneurship

Before opening, an entrepreneur has to settle eight things: type of business to select, its size, location, financing, physical facilities, a competent and committed workforce, tax planning and finally launching the enterprise. These are forward looking choices. The seven characteristics are different: they describe a business that is already running.

Entrepreneurship is a systematic, purposeful and creative activity of identifying a need, mobilising resources and organising production, to deliver value to customers, returns to investors and profit to oneself, while accepting risk and uncertainty.

Exam traps

60-second revision

Where this chapter connects

• Next: Forms of Business Organisation takes the question "which type of business should I start" and compares the legal forms an owner can choose.
• Trade in depth: Internal Trade expands wholesale, retail and the auxiliaries to trade introduced here.
• Starting up: MSME and Business Entrepreneurship builds on the entrepreneurship definition and the eight factors.