Branches of commerce:
1. TRADE
2. Warehousing
3. Insurance
4. Banking
5. Transport
Trade : Trade eliminates the barriers of persons for the smooth flow of goods from producer to consumer. Trade implies buying and selling of goods. The producer always looks for persons who are interested in their goods at sensible price. The producers may not be able to establish get in touch with the prospective customers particularly those who are residing in far flung areas. So, it requires persons as middlemen to establish a contact between producer and scattered customers. Trade removes the hindrance of persons by introducing wholesalers and retailers as middlemen and thus implementation the chain starting with the producers and terminating at vital consumers.
In ancient India:
Local trade was primarily focused on supplying the cities with food and the raw materials for producing tools, status objects and trade goods. Sea trade was probably heaviest with Oman since numerous Indus artifacts have been found in Oman. Trade was conducted through a barter system and a reciprocal exchange of goods for services and probably through the exchange of standardized system of cubical stone weights. Since then India is always remained as one of the major traders in world, till British rule.
After independence:
Indian trade was highly controlled and restricted by government rules and regulations. But later in 1991trade reforms were introduced by government and he main features of those reforms were:
(i) Removal of Quantitative Restrictions on Imports:A step was taken in the direction of simplification and liberalisation of imports. In March 1996, import restrictions were removed off 6161 tariff lines. In 2000-01 and 2001-02, quantitative restrictions were removed in the case of 714 and 715 tariff lines respectively.
(ii) Reduction in Import Tariffs: In the 1993-94 Budget, the government of India reduced the peak rates of import duty from 110 percent to 85 percent. Subsequently, the government continued to scale down the peak rates of import tariffs in phases. At present, the peak rate of import duty on non-agricultural goods is only 10 percent.
(iii) Convertibility of Rupee on Current Account:The partial convertibility of rupee was introduced in 1992-93. The full convertibility of rupee on current account was introduced in 1994-95. Consequently, the exchange rate of rupee no longer remained pegged. It became a market- determined rate.
(iv) Decanalisation:The government had set up prior to 1991, the organisations like State Trading Corporation and Metals and Mineral Trading Corporation in the public sector. The imports and exports of several products used to be canalised through them. 20 of the import items and 16 of the export items out of them were decanalised by the government in August 1991.
(v) Concessions and Exemptions: (1) Reduction in the peak rate of import duty to 15 percent;
(2) Reduction in the rates of duties in the information technology sector upon certain critical imports;
(3) A 10-year tax holiday to the developers of Special Economic Zones (SEZ) for the building up of infrastructure; and
(4) Extension of facilities and tax benefits to the exporters. In addition, the policy of providing tax benefits to information technology, telecommunication and entertainment sectors was adopted by the government.
(vi) Promotion of Exports of Services:the Exim Policy 2002-07, announced in March 2003, included several measures. The advance licence system was announced for the tourism sector
(vii) Special Economic Zones (SEZ) Scheme: In March 2000, the government announced the scheme for the establishment of Special Economic Zones (SEZ) for the boosting up of exports.
(viii) Setting Up of Agricultural Export Zones: The Exim Policy of 2001 put forward the proposal of setting up of Agricultural Export Zones (AEZ)
Warehousing : Warehousing removes the hindrance of time. There is always a time gap between production and consumption. So, the goods are produced in expectation of demand. Certain goods are produced in a particular season such as sugar, wheat etc. and are consumed throughout the year. While, some other goods such as woolen clothes, coolers, fan etc. are manufactured throughout the year, but are used in particular period. Thus, there is time gap between production and consumption. The hindrance of time is removed by storing the goods in the warehouse and these are made available to the consumers as and when demanded by them. Thus, the warehousing creates time utility.
The size of the Indian warehousing industry (across commodities and modes) is pegged at about INR560 billion (excluding inventory carrying costs, which amount to another ~INR4,340 billion). The industry is growing at over 10% annually.Warehousing forms a crucial link in the overall logistics value chain. It accounts for ~5% of the Indian logistics market (excluding inventory carrying costs, which amount to another ~30%.
Multiple business models exist within the warehousing industry. The key segments can be represented as:
· Industrial/Retail warehousing: accounts for ~55% of the total market
· CFS/ICD: ~14% share
· Agriculture warehousing: 15% share
· Cold stores: ~16% share
Industry/retail warehousing
Industrial/Retail warehousing has a market size of ~INR310 billion in FY13 and it has been growing at a CAGR of 10%–12% over the last few years. Demand for industrial warehousing space is estimated to have grown from around 420 million sq. ft. in FY11 to 475 million sq. ft. in FY13, at a CAGR of 6%.
Liquid storage
The terms liquid storage mainly refers to the storage of liquid bulk such as crude, petroleum products, chemical and edible oil. Liquid bulk cargo handled at ports has been growing at a CAGR of 5%–6% between FY10 and FY13.Demand for liquid storage space is increasing in India amid increasing traffic and limited existing capacities. Currently, the utilization of commercial tank farms in India is between 75% and 80% in FY13.
Agriculture-warehousing
Agriculture warehousing accounts for ~15% of the warehousing market in India, or ~INR80–85 billion, in FY13. It has been growing at a 10%–12% rate over the last 3 years. Agriculture warehousing capacity in India is 110–120 million metric ton (MT), and it has been growing at a CAGR of 8%–10% over the last 5 years.
Cold stores
Cold stores account for ~16% of the total warehousing industry and it estimated to worth a ~INR90 billion industry. The cold storage industry is expected to grow at ~15% per annum on a sustained basis over the next 5 years, with the organized market growing at a faster pace of ~20%
Container handling and storage
CFS/ICD accounts for ~14% of total warehousing market in India and is estimated at around ~Rs.75-80 bn in FY13 in India and has grown with a CAGR of 10-15% over last 3 years.
Insurance : Insurance removes the hindrance of threat. The goods are uncovered to different kinds of risks i.e. theft, destruction by fire etc. when the goods are in transit. Similarly, when the goods are stored in warehouses, there is also a risk of loss due to theft, fire or any other natural calamities etc. Thus, the hindrance of risk is an off shoot of the hindrance of time and place. To cover the risk of loss, there are various types of insurance policies. Fire insurance covers the risk of loss due to fire. The risk of loss from the perils of sea is covered by marine insurance. Thus, the insurance removes the hindrance of risk.
HISTORY
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.In 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. Today there are 31 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.
Government's policy of insuring the uninsured has gradually pushed insurance penetration in the country and proliferation of insurance schemes.Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance. Overall insurance penetration (premiums as % of GDP) in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001.In FY19 (up to October 2018), premium from new life insurance business increased 3.66 per cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to October 2018), gross direct premiums of non-life insurers reached Rs 962.05 billion (US$ 13.71 billion), showing a year-on-year growth rate of 12.40 per cent.
Banking : Banking removes the hindrance of finance and facilitate the exchange. The exchanges of goods take place subject to time, place and price. In the process of distribution, the middlemen have to arrange for finance, since there is a time lag between the production and consumption. Bank provides loans and overdrafts which eliminate the hindrance of finance. Moreover, banking play an important role as a means of transfer of money from one person to another. In the international trade, role of banks is vital in making and receiving payments.
According to the Banking Companies Act of 1949, Banking is defined as, accepting for the purpose of lending or investment of deposit money from the public, repayable on demand or otherwise and withdraw-able by cheque draft, order or otherwise. It also defines Bank as an institution dealing in money and credit. It safeguards the savings of the public and gives loans and advances.
The main functions of the banking sector are as following:
1. It provides liquidity for economic growth of a country
2. It acts as the main pillar of the whole financial system
3. It offers safety for the depositors who want to deposit their savings in the Bank
4. It offers liquidity for the borrowers both on short and long-term basis based on their need
5. It provides credit or loan to dealers, households, small as well as large business houses
6. It helps to manage all the financial transactions between different parties
7. It provides the Government with the flexibility to reach to the masses across the country
The banking sector was developed during the British era. British East India Company established three banks,
1. Bank of Bengal – 1809
2. Bank of Bombay – 1840
3. Bank of Madras – 1843
These three banks were later amalgamated and called Imperial Bank, which was taken over by SBI in 1955. The Reserve Bank of India was established in 1935, followed by the Punjab National Bank, Bank of India, Canara Bank and Indian Bank. They have been the pallbearers in the History of Banking in India. In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks were taken over by the government. Indian banking system, over the years, has gone through various phases. For ease of study and understanding, it can be broken into four phases:-
1. Early Phase(1786-1935): During the first phase, the growth was very slow and banks experienced periodic failures during the Early Phase between. There were approximately 1100 banks, mostly small which failed in the early phase.
2. Pre-Nationalization Phase(1935-1965): Breakthrough happened in this phase, was Reserve Bank of India. Reserve
Bank of India (RBI) was created with the central task of maintaining monetary stability in India. This phase of Indian banking was eventful and was a phase of restructuring, regulation. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons
3. Post Nationalization Phase(1969-1990): This phase of Indian banking not so happening for entry of new banks. Undoubtedly, it was a phase of expansion, consolidation and increment in many ways. The banking sector grew at a phenomenal rate, fruits of nationalization were evident, and the common man was now banking with great trust.
4. Modern Phase(1990-present): This is the phase of “New Generation” tech-savvy banks. This phase can be called as “The Reforms Phase”. Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks.
History of Banking in India – Current Banking Scenario:
Banks in India can be categorized into Scheduled and Non-scheduled Banks.
1) Scheduled Banks
Scheduled Banks in India constitute those banks, which have been included in the Second Schedule of Reserve
l Bank of India (RBI) Act, 1934. These banks should fulfil two conditions:
l Paid up capital and collected funds should not be less than Rs.5 lakh
Any activity of the Bank should not be detrimental or adversely affect the interests of the customers. It comprises Commercial Banks and Cooperative Banks. Commercial Banks are both scheduled and Nonscheduled commercial banks regulated Banking Regulations Act 1949. Commercial Banks works on a ‘Profit Basis’ and are engaged in the business of accepting deposits for the purpose of advances/loans.
There are four types of Scheduled Commercial Banks:
Public Sector Banks
Private sector Banks
Foreign Banks
Regional Rural Banks
2) Non-scheduled bank
Non- Scheduled Banks in India means “a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank” Reserve Bank of India is the central bank of the nation and all Banks in India are required to follow the guidelines issued by RBI. Banks in India can also be classified in a different way:
Public Sector Banks: They are those banks where Govt. is the owner or having more than 51% stake in the capital. Currently, there are 21 Public Sector Banks in India including 19 Nationalized Banks. State Bank of India and its 5 Associate Banks together called State Bank Group.
Private Sector Banks: Private Banks is owned by private individuals/institutions. These are registered under the Companies Act 1956 as Limited Companies.
Regional Rural Banks (RRBs): Previously these were 196 Regional Rural Banks sponsored by 27 State Cooperative Banks. As on 31st March 2013 due to mergers their number has come down from 196 to 64
Foreign Banks: These banks are incorporated outside India and are operating branches in India also.Some foreign banks are also having their representative offices in India.
Development Banks: These include Industrial Finance Corporation of India (IFCI) established in 1948, Export-Import Bank of India (EXIM Bank) established in 1982, National Bank for Agriculture & Rural Development (NABARD) established in 1982, and Small Industries Development Bank of India (SIDBI) established on 2nd April 1990
l History of Banking in India – Reforms:
l The Indian banking sectors is an important constituent of the Indian financial system.
l The banking sectors play a vital role in promoting business in urban as well as in rural areas in recent years.
l Without in India cannot be considered as a healthy economy.
l For the past three decades, India’s banking system has several outstanding achievements to its credit.
l NPA’s Have increased since 2011 after a steady decline in 2000’s
The banking system in India, through a measure, gradual, caution and steady process has undergone a substantial transformation. Banks have come a long way from the temples of the ancient world, but their basic business practices have not changed. Even if the future takes banks completely off your street corner and onto the internet, or has you shopping for loans across the globe, the banks will still exist to perform this primary function banking in India.
Transport: Transport removes the hindrances of place. Usually in the current set up, the places of production and place of consumption are quite for from each other. The distance between the centre of production and centre of consumption creates a gap between producer and consumer. Therefore, transport provides place utility. The different means of transport are roadways, railways, ocean routes and airlines. The transport has shortened the distances and brought the people closer and so the producers and consumers. Hence, the transport removes the hindrance of place.
In ancient India:-
· Flat-bottomed boats and rafts on rivers were used for trading. These boats would have carried most of the trade goods up and down the Indus Valley. Human porters pulling the boats from the riverbank probably aided the trip upriver. Long oars and sails made from mat or heavy cotton cloth would also have been used.
· Two wheel bullock carts were used for heavy transport across the plains. These carts were made in five different styles, which were probably used by different sections of the population. They would have been made of wood with leather and sinew bindings for the harnesses.
· Pack animals included oxen, sheep and goats
· Sea-going vessels would have had sails and a keel.
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RECENT: India’s transport sector is large and diverse; it caters to the needs of 1.1 billion people. In 2007, the sector contributed about 5.5 percent to the nation’s GDP, with road transportation contributing the lion’s share.
Good physical connectivity in the urban and rural areas is essential for economic growth. Since the early 1990s, India's growing economy has witnessed a rise in demand for transport infrastructure and services.
However, the sector has not been able to keep pace with rising demand and is proving to be a drag on the economy. Major improvements in the sector are therefore required to support the country's continued economic growth and to reduce poverty.
Roads. Roads are the dominant mode of transportation in India today. They carry almost 85 percent of the country’s passenger traffic and more than 60 percent of its freight. The density of India’s highway network -- at 0.66 km of roads per square kilometer of land – is similar to that of the United States (0.65) and much greater than China's (0.16) or Brazil's (0.20). However, most roads in India are narrow and congested with poor surface quality, and 33 percent of India’s villages do not have access to all-weather roads.
India’s transport sector is large and diverse; it caters to the needs of 1.1 billion people. In 2007, the sector contributed about 5.5 percent to the nation’s GDP, with road transportation contributing the lion’s share.
Good physical connectivity in the urban and rural areas is essential for economic growth. Since the early 1990s, India's growing economy has witnessed a rise in demand for transport infrastructure and services.
However, the sector has not been able to keep pace with rising demand and is proving to be a drag on the economy. Major improvements in the sector are therefore required to support the country's continued economic growth and to reduce poverty.
Roads. Roads are the dominant mode of transportation in India today. They carry almost 85 percent of the country’s passenger traffic and more than 60 percent of its freight. The density of India’s highway network -- at 0.66 km of roads per square kilometer of land – is similar to that of the United States (0.65) and much greater than China's (0.16) or Brazil's (0.20). However, most roads in India are narrow and congested with poor surface quality, and 33 percent of India’s villages do not have access to all-weather roads.
Railways. Indian Railways is one of the largest railways under the single management. It carried some 19.8 million passengers and 2.4 million tonnes of freight a day in year 2009 and is one of the world’s largest employer. The railways play a leading role in carrying passengers and cargo across India’s vast territory. However, most of its major corridors have capacity constraint requiring capacity enhancement plans.
Ports. India has 13 major and 199 minor and intermediate ports along its more than 7500 km long coastline. India’s seaborne foreign trade being 95% by volume and 67% by value, the ports play a very significant role in improving foreign trade in a growing economy. These ports serve the country’s growing foreign trade in petroleum products, iron ore, and coal, as well as the increasing movement of containers. Indian ports handled cargo of 850 million tonnes and about 9.0 million TEU container traffic in year 2010. Over the last decade, the average annual growth rate of port cargo volume has been about 10%.. The future potential for port sector, particularly container ports is huge considering that the container traffic is projected to grow to 40 million TEU by 2025. Inland water transportation also remains largely undeveloped despite India's 14,000 kilometers of navigable rivers and canals.
Aviation. India has 128 airports, including 15 international airports. Indian airports handled 142 million passengers in 2010-11 and 1.6 million tonnes of cargo in year 2009-10. The CAGR for the domestic passenger and freight growth over the last decade has been 14.2% and 7.8% respectively. The dramatic increase in air traffic for both passengers and cargo in recent years has placed a heavy strain on the country's major airports. Passenger traffic is projected to grow more than 15% annually over 2011-13 and it is estimated that the aviation industry, currently 9th largest in the World, will require 30 billion USD investment in the next 15 years to keep pace with the growing demand.
Railways. Indian Railways is one of the largest railways under the single management. It carried some 19.8 million passengers and 2.4 million tonnes of freight a day in year 2009 and is one of the world’s largest employer. The railways play a leading role in carrying passengers and cargo across India’s vast territory. However, most of its major corridors have capacity constraint requiring capacity enhancement plans.
Ports. India has 13 major and 199 minor and intermediate ports along its more than 7500 km long coastline. India’s seaborne foreign trade being 95% by volume and 67% by value, the ports play a very significant role in improving foreign trade in a growing economy. These ports serve the country’s growing foreign trade in petroleum products, iron ore, and coal, as well as the increasing movement of containers. Indian ports handled cargo of 850 million tonnes and about 9.0 million TEU container traffic in year 2010. Over the last decade, the average annual growth rate of port cargo volume has been about 10%.. The future potential for port sector, particularly container ports is huge considering that the container traffic is projected to grow to 40 million TEU by 2025. Inland water transportation also remains largely undeveloped despite India's 14,000 kilometers of navigable rivers and canals.
Aviation. India has 128 airports, including 15 international airports. Indian airports handled 142 million passengers in 2010-11 and 1.6 million tonnes of cargo in year 2009-10. The CAGR for the domestic passenger and freight growth over the last decade has been 14.2% and 7.8% respectively. The dramatic increase in air traffic for both passengers and cargo in recent years has placed a heavy strain on the country's major airports. Passenger traffic is projected to grow more than 15% annually over 2011-13 and it is estimated that the aviation industry, currently 9th largest in the World, will require 30 billion USD investment in the next 15 years to keep pace with the growing demand.
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