India’s internal trade is many times larger than its foreign trade. This is because of the vastness of the country, its varied climate and diverse natural resources. Unfortunately, adequate and reliable statistics are not available to make an exact estimate of the volume and composition of internal trade. Statistics of bank clearances of goods and traffic carried by railways serve only as a rough estimate of the extent of internal trade.
The figures of bank clearances are not a reliable index of either the volume or the extent of internal trade. Similarly, the railway statistics are not dependable. The amount of goods carried by railway largely depends upon the prevailing conditions of trade and on the degree of competition from road transport services.
Regarding the extent of internal trade before independence, the Sub-Committee of the National Planning Committee (NPC) made the following observations- “It would be safe to assume that our internal trade is not less than Rs. 7000 crores in 1940. This figure may be contrasted with the size of our external trade which is about Rs. 500 crores.”
Since independence, internal trade has increased appreciably due to developmental planning in the country. In the course of five year plans, a balanced expansion of internal trade has taken place as a result of planned development of transport, communication and banking.
Some indication of the magnitude of internal trade in the country is given by the goods traffic and earnings from goods carried on the Indian railways. Over the years, the revenue-earning goods traffic on Indian railways has increased from 732 lakh tonnes in 1950-51 to 9691 lakh tonnes in 2010-11. The earnings from goods carried have increased from Rs. 139crorein 1950-51 to Rs. 67761 crore in 2010-11.
Similarly, the increase in the length of National Highways (NHs) and the number of goods vehicles also indicate a boost in the internal trade. The length of NHs has increased from 20 thousand km to 82 thousand km in 2010-11. The number of goods vehicles increased from 82 thousand to 7074 thousand in the same period during 1950-51 to 2010-11.
The internal trade of India can be classified under five broad heads- (a) rail-borne trade, (b) river-borne trade, (c) coastal trade, (d) trade borne on other craft, and (e) trade by air. Information on rail-and-river-borne trade is collected on the basis of the invoices of railway and streamer companies.
For this purpose, India is divided into a number of trade blocks, roughly representing the states of the Indian Union. The chief port towns of Bombay, Calcutta, Cochin, and Madras are constituted as separate blocks. The number of trade blocks since 1977 is 38.
Coastal trade is recorded under two heads:
(i) Internal trade i.e., trade among the ports within the same maritime block;
(ii) External trade, i.e., trade between one maritime block on the one hand and all other maritime blocks on the other.
In a country like India, where distances are so great, a well-planned system of transport and communication is a vital necessity for the growth of industry and trade. In the past, the main considerations in the development of transport and communication were trade and administration.
But, after independence, the system of transport and communication has been increasingly oriented to serve the requirements of rapid industrialisation in the country.
A properly developed system of transport and communication, which makes trade possible, plays important role in the material progress of the country.
(i) The system of transport and communication provides the necessary link between production centres, distribution areas and the ultimate consumers.
(ii) It widens the market for goods, and thereby increases the opportunities for specialisation and large scale production.
(iii) It increases the economic value of goods by making them available at the time and place where they are required most.
(iv) By transferring goods from places of surplus to places of shortage, the transport system brings price uniformity.
(v) It increases employment opportunities, both directly as well as indirectly.
(vi) It promotes social integration.
(vii) It leads to the diffusion of knowledge, thus removing various barriers to economic progress, such as ignorance, superstitions, caste prejudices, false customs, etc.
Transport Facilities for Internal Trade:
Transportation refers to the system of movement of men and materials from one place to another. Marshall wrote in his book, Industry and Trade- “The ‘transport’ industry which undertake nothing more than the mere movement of persons and things from one place to another, have constituted one of the most important activities of men in every stage of advanced civilization.”
The system of transportation- (a) integrates the physical distribution of goods, (b) creates time and place utility, and (c) maximises the value of products by delivering them when and where they are wanted. Important forms of transport system used in India are- (a) rail transport, (b) road transport, (c) water transport, and (d) air transport.
Indian railways form the lifeline of country. It caters to the country’s need for large scale movement of traffic (both freight and passenger) and there-by contributes to economic growth and promotes national integration. It is a convenient mode of transport for long distances and is particularly suitable for carrying heavy and bulky goods, like iron ore, iron and steel, heavy machinery etc.
Indian Railways had a modest beginning in April 1853 when the first train covered a small distance of 34 km from Bombay to Thana. Over the years, Indian Railway system has developed to be the largest in Asia and second largest in the world under a single management.
Table 1 gives an overview of the progress made by Indian Railway during the five year plans-
As is clear from Table-1; the total rout length of railways has grown from 53596 km in 1950-51 to 64600 km in 2011-12; the electrified rout length made a phenomenal growth from 388 km in 1950-51 to 20280 km in 2011-12.
The revenue earning goods traffic increased from 732 lakh tonnes in 1950-51 to 9691 lakh tonnes in 2010-11 and passenger traffic increased from 12840 lakh to 82244 in the same period. Earnings from goods carried have also increased from Rs. 139 crore to Rs. 67761 crore during 1050-51 to 2010-11.
Since the inception of the First Five Year Plan in 1950-51, the main objectives of the railway planning has been to develop traffic. With capacity being stretched to the full, the investment in cost-effective technological changes has now become necessary in the railway system in order to meet the ever- increasing demand.
During first eight five year plans period, the emphasis was laid on a comprehensive programme of system modernisation. Along with the major thrust directed towards rehabilitation of assets, technological changes and up gradation of standards were introduced in the areas of track, locomotives, passenger coaches, wagon bogie designs, signaling and telecommunication.
Indian railways suffer from a number of problems. Important among them are- (a) financial crisis due to increasing costs and uneconomic freights and fares; (b) heavy losses due to social burden of Indian railways; (c) increasing inefficiency and mismanagement; (d) low capacity utilisation of wagons; (e) rampant corruption; (f) inadequacy and uneven distribution of railway services; etc.
(i) A number of places (such as far-off villages, hilly areas, etc.) which are not connected by railways, can be approached only through road transport
(ii) Road transport is most suitable for short and medium distance.
(iii) Road transport is more flexible and provides door to door services.
(iv) It is a better and quicker means of transport for carrying perishable and less bulky goods.
(v) The chances of delay, loss or damage are relatively less in case of road transport
(vi) Road transport requires comparatively less capital expenditure.
(vii) Road transport has special significance for the purpose of defence.
(viii) There is much more score for creating employment through road construction and maintenance.
(ix) Road transport is complementary to railways because the goods arriving at railway stations are taken to their destinations through trucks or other means of road transport.
Indian road network is one of the largest in the world. At present (2010-11), the total road length is 47 lakh km; it was only 4 lakh km in 1950-51. The country’s road network consists of National Highways, State Highways, district roads, rural roads.
Though the National Highways (NHs), which is the responsibility of the central government, comprises only 1.7% of the total length of roads, it carries over 40% of the total traffic across the length and breadth of the country.
Table-2 shows the progress of road transport. The length of NHs has increased from 20 thousand km in 1950- 51 to 71 thousand km in 2010-11. The number of registered vehicles in the country has increased from 306 thousand in 1950-51 to 1419 lakh in 2010-11, The number of goods vehicles has increased from 82 thousand in 195-51 to 71 lakh in 2010-11; The number of buses has increased from 34 thousand to 16 lakh.
Main problems of road transport in India are- (a) large tracts of missing road links; (b) bad and poorly maintained roads; (c) inefficiency in operations; (d) heavy toll taxes and octroi duties; (e) losses in state road transport corporations; etc.
1. Inland Water Transport:
The inland waterways have played an important role in the Indian transport system in the past. But, in recent times, its importance has declined largely due to the expansion of rail and road transport. Inland water transport includes- (a) natural modes, such as navigable rivers and (b) artificial modes, such as canals. India has about 5200 km of major navigable rivers.
But, out of these, only 1700 km are actually utilised. Similarly, the available navigable length of canals is 485 km, of which only 33.5 km is being actually utilised. The important navigable rivers are- the Ganga, The Brahmaputra and its tributaries, The Godavari, the Krishna, the Mahanadi, the Narmada, the Tapti, etc.
Inland Waterways Authority of India (IWAI) was set up in 1986 for regulation and development of inland waterways for the purpose of shipping and navigation.
Following five waterways have so far been declared as national highways:
(i) Allahabad – Haldia stretch (1620 km) of Ganga – Bhagirathi -Hooghly river system (NW-10) in 1986.
(ii) Sadia-Dhubri stretch (891 km) of Brahmaputra river (NW-2) in 1988.
(iii) Kottapuram – Kollam stretch of West Coast Canal along with Champakara Canal and Udyogmandal Canal (205km) (NW-3) in 1993.
(iv) Kakinada – Puducherry stretch of Canal and Kalurelly Tank, stretches of river Godavari and Krishna (1028km) in 2008.
(v) Talcher – Dhamra stretch of river Brahmni, Geonkhali Charbatia stretch of East Coast Canal, Charbatia – Dhamra stretch of Matai river along with Mahanadi delta river system (585km) in 2008.
i. Overseas Shipping:
Shipping has an important role to play in the development of India’s international as well as internal trade. As regards shipping, India has the largest merchant shipping fleet among developing countries and ranks 16th in the world in shipping tonnage. By May, 2011, India’s fleet strength was of 107 lakh Gross Registered Tonnage (GRT).
ii. Coastal Shipping:
Coastal shipping is most efficient and comparatively cheaper means of transport. It is particularly suitable for carrying bulky goods like iron and steel, iron ore, timber, etc. along the coast. India has a long coast line of 7517 km. The coastal fleet of the country consists of 244 ships with 62 lakh GRT at the end of March 1998.
Some of the problems faced by the coastal shipping are- (a) overage vassals; (b) high maintenance and operating costs; (c) inordinate delays at ports; (d) cumbersome port and customs procedure; (e) structural imbalances in coastal traffic movement; etc.
Air transport is the modern and the quickest mode of transport. It is specially suitable for carrying high- valued light goods and perishable goods over long distances. In India, civil aviation started in 1920, when a few aerodromes were constructed. The Civil Aviation Department was set up in 1927. But, the process was slow until the Second World War.
There are at present a number of agencies involved in providing civil aviation services in India. While Air India, Indian Airlines, Vayudoot and Pawan Hans provide air services, infrastructural facilities are provided by Directorate General of Civil Aviation (DGCA), International Airport Authority of India (IAAI) and National Airport Authority (NAA).
Apart from Air India and its subsidiaries, there are at present (2010-11) six private scheduled operators operating on the domestic sector providing wide choice of flights and connectivity to various parts of India.
They are- Jet Airways (India) Ltd., Jetlite Airlines, Go Airlines (India) Pvt. Ltd., Kingfisher Airlines, Spicejet Ltd., and Inter Globe Aviation Ltd. Three cargo airlines, viz., Blue Aviation Pvt. Ltd., Deccan Cargo and Express Logistics, are operating scheduled cargo services in the country.
Ministry of Civil Aviation is responsible for the formulation of national policies and programmes relating to the development and regulation of civil aviation. Directorate General of Civil Aviation (DGCA) is responsible for enforcing civil air regulations, air safety and airworthiness.
International Airport Authority of India (IAAI) looks after the development of the five international airports. India has bilateral air service agreements with 92 countries. Air India owns a fleet of 26 aircrafts and Indian Airlines has a fleet of 53 aircrafts.
In trade, the term ‘communication’ refers to the information system which links producers, intermediaries and customers. It includes various methods and techniques which facilitate the flow of information among the members in the trading process. The major communication facilities available in India can be classified into- (a) postal services and (b) telecommunication services.
Indian postal system dates backs to 1837 when postal services were opened to public. The postal Department was set up in 1854 when about 700 post offices were already in existence.
Money order system was introduced in 1880. Post Office Saving Bank started functioning in 1882. Postal Life Insurance came up in 1884. Railway Mail Service began in 1907 and Air Mail Service started in 1911.
1. Post Offices:
At present (2011), there are 1.55 lakh post offices in the country; 1.4 lakh (89.8%) are in rural areas and 0.15 lakh (10.2%) in urban areas. On an average, a post office in India serves an area of 21.2 sq. km. and a population of 7814 people.
In addition to post offices, basic postal facilities are also offered through Franchises Outlets in the urban areas and Panchayat Sanchar Seva Kendras. For operational purposes, the country is divided into 19 postal circles under Postal Services Board which was set up in December 1984.
2. Mail Circulation:
Mail circulation has increased enormously mainly because of industrialisation, increase in population and spread of education. Mail is carried both by surface and air. For surface mail, various modes, such as trains, roads, boats, camels, horses and cycles, are used. All principal cities connected by air are served by direct air mail. In 1998, 1577 crore pieces of mail were handled.
3. Speed Post Service:
Speed post service began in August 1986. Under this service, articles are delivered with a definite time frame, with money back guarantee for any service defect. Initially introduced in 7 cities, the speed post service now covers 62 cities.
4. Speed Post Money Order:
Speed post money order scheme was introduced in May 1988 to provide a guaranteed and time-bound money transfer facility. It ensures payment of cash at the doorstep of the payee within 24 to 72 hours depending upon the destination. This service is available in all speed post cities.
The Postal Department also provides the following foreign mail facilities:
(i) India has direct postal links with almost all countries. Foreign mail originating in India is generally carried by sea and air.
(ii) India is a member of Universal Postal Union (UPU), Asian Pacific Postal Union (APPU) and Conference of Common wealth Postal Administration (CCPA). All these organisations aim at extending, facilitating and improving postal relations between member countries.
(iii) An expedited foreign mail service, known as International Speed Post Service, was introduced in August 1986 to selected destinations. This is a time-bound delivery service guaranteeing delivery within a stipulated time frame, failing which there is a money back guarantee.
(iv) International Merchandise Speed Post Service was introduced from April 1988. All articles, other than those for which insurance is compulsory, can be sent as merchandise. This service is available for 36 countries.
6. Pin Code:
To facilitate efficient and correct handling of increasing volume of mail, a numerical postal address code, known as, Postal Index Number (PIN), was introduced in 1972. The PIN code has six digits which helps to identify and locate every departmental delivery post office. First digit indicates region, second sub-region, and third sorting district. The last three digits indicate a particular delivery post office in the area served by the sorting district.
Postal services have been modernised in two ways:
(a) Through mechanisation and
(b) Through computerisation.
With a view to improve the quality of service, and providing better customer service at counters of post offices, and Postal Department has introduced a number of new devices. There are 37,787 franking machines in use in the country.
Because of phenomenal increase in mail, particularly commercial, 60 high speed franking machines have been imported and installed in metropolitan post offices. These machines have resulted in significant increase in postage revenue other than sale of postage stamps.
Postal services have been computerised in Bangalore, Madras, Delhi and Bombay. The first computer was installed in Bangalore General Post Office to handle postal life insurance business.
Computer is used in Madras for money order pairing work and in Delhi for money order pairing work, international air mail accounting and saving bank control operation. In Bombay, Integrating Mail Processing System has been taken up in collaboration with Computers Maintenance Corporation (CMC).
8. Agency Facilities:
The Postal Department also performs agency functions, such as Post Office Savings Bank (POSB) and Postal Life Insurance (PIL). POSB operates the small savings schemes of Government of India, Ministry of Finance on an agency basis. It operates more than 260 million Savings Accounts. It meets the banking requirements of small investors.
PLI was introduced on February 1, 1834. Over the years, PLI has grown substantially from a few hundred policies in 1884 to more than 56.23 lakh policies as on March 31, 2012 with a sum total assured of Rs. 79,183.44 crore. On the recommendations of Malhotra Committee (1993), PLI was allowed to extend its coverage to rural areas with effect from March 24, 1995. As on March 31, 2012, about 196.3 lakh Rural PLI policies with Rs. 82,514.86 crore sum has been assured.
9. Wage Payment under MNREGA:
Mahatma Gandhi National Rural Employment Guarantee Act came into force on September 7, 2005. As per the provisions of this Act, the payment of wages of the MNREG Scheme shall be made through the individual or joint saving accounts of the MNREGS workers opened in banks or in post offices.
Post offices have been selected for payment of wages under MNREGS due to the following reasons- (a) Largest network in the country; (b) Reliability and trustworthiness; (c) payment of wages in fair and transparent manner within the prescribed time limit; (d) ensuring financial inclusion in unbanked and under-banked areas; (e) to plug possible leakages in wage payment.
Telecommunication services in India were introduced soon after the invention of telegraph and telephone. First telegraph line was opened for traffic in 1851 between Calcutta and Diamond Harbour. Telephone service was also first introduced in Calcutta in 1881-82.
By 1900, telegraph and telephone had started serving Indian Railways. First automatic exchange was commissioned at Shimla in 1913-14 with a capacity of 700 lines. The following (Table-3) is the account of availability and growth of various telecom services in India since independence.
I. Vital Role:
In the modern age, telecommunication is a vital input for economic competition. For India, telecommunication is important not only because of its role in bringing the benefits of communication to every corner of the country, but also serving the recent policy objectives of improving the global competitiveness of Indian economy and stimulating and attracting foreign direct investment.
II. Growth of Telephone Service:
In April 1948, India had only 321 telephone exchanges, one lakh lines and 82 thousand working connections. As on 30 September, 1996 there were 21328 telephone exchanges with a capacity of 152 lakh lines and 126 lakh working connections.
III. Rural Services:
The Department of Telecommunications (DOT) aims at providing public telephones in all the villages of the country. During 1993-94, 33001 villages were provided with telephone facility.
IV. Subscriber Trunk Dialing (STD) System:
STD system was introduced for the first time between Kanpur and Lucknow in 1960. This service is now available between almost all the important cities of India. STD service has promoted business and trade in this country.
V. International Telephone Service:
India’s first international telephone exchange was commissioned in 1973. International Direct Dialed (10D) telephone service was first introduced from Bombay to the U.K.
VI. Telex Service:
The national Telex Service was opened in 1962. In 1993, the telex facility was available extensively with a total of 56699 lines. Telex service provides a direct communication link between subscribers by means of teleprinters. However, demand for telex connections is going down because of increased us of FAX.
VII. National Telecom Policy (NTP):
The national Telecom Policy (NTP) was announced in May 1994. The important features of NTP are- (a) introduction of competition in basic telecom services; (b) target for telephone on demand by the end of the Eighth Plan; (c) phone connection in every village by 1997; (d) installation of one Public Call Office (PCO) per 500 persons in urban areas by 1997; (e) all value-added services available internationally to be operational in India by 1997; (f) the country emerging as a major manufacturing base and major exporter of telecom equipment.
VIII. Private Sector Entry:
The government has allowed private sector entry in basic telecom services. The companies providing basic telecom services will have to maintain balance in their coverage between urban and rural areas.
IX. Value-Added Services (VAS):
Value-added services were opened to the private sector in 1992. These services include Cellular Mobile Phones, Radio Paging, Electronic Mail, Voice Mail, Audiotax Services, Videotax Services, Data Services using VSATs, and Video Conferencing.
X. Telecom Regulatory Authority of India (TRAI):
The government has decided to establish the Telecom Regulatory Authority of India (TRAI) to ensure fair competition and protect and promote the interests of consumers. It will also facilitate the entry of private sector. On February 20, 1997, TRAI has started functioning.
XI. NTP 1999:
New Telecom policy (NTP 1999) provides:
(a) The number of players and their mode of selection is to be decided on the basis of recommendations from the TRAI in a time-bound manner.
(b) The fixed Service Providers would be required to pay one-time entry fee and licence fee in the form of revenue share.
(c) The level of entry fee and licence fee, the percentage of revenue and basis of selection of new operators are to be decided on the recommendations of TRAI in a time-bound manner. According to this policy, the market forces will ultimately determine the number of Fixed Service Providers.
XII. Present Position (2011):
Indian telecom sector has now come a long way in achieving its dream of providing affordable and effective communication facilities to its citizens. The proactive policies of the Department of Telecommunications have resulted in an unprecedented growth of the telecom sector. The structure and composition of telecom growth has undergone a substantial change in terms of mobile versus fixed phones and public-private participation.
Various developments in the area of telecom services are as follows:
(i) Indian telecom network with 846.33 million telephone connections at the end of March, 2011 is the 2nd largest in the world.
(ii) With its 811.6 million wireless phones at the end of March, 2011, India has the 2nd largest wireless network in the world.
(iii) The wireless subscribers are not only much more than the wire line subscribers in the country, but also growing at a much faster pace. Wireless customer base is growing at the rate of 19 million per month. The share of wireless phones has increased from 46.5% in March 2004 to 95.9% at the end of March 2011.
(iv) As on March 31, 2011, there were 282.3 million phones in rural areas.
(v) Broadband service has the potential of creating an environment for promoting knowledge based society. The broadband subscribers grew from 0.2 million in 2005 to 11.5 million in February 2011.
(vi) The share of private sector increased from 5% in 1999 to 85 % in 2011.
(vii) At present, 74% to 100% FDI is permitted for various telecom services.
(viii) Indian telecom industry manufactures a complete range of telecom equipment.
In a welfare state, the policy of laissez-faire (or unrestricted trade) is not a desirable policy for achieving the objective of economic growth with social justice.
Government intervention in the form of public distribution is necessary for the following reasons:
(a) To protect the consumers, particularly the weaker sections of society, from the exploitation of the traders;
(b) To ensure that anti-social elements do not hold the community to ransom in a situation of shortage;
(c) To avoid the recurrence of shortages in certain areas marked by fluctuations in the production of food grains; and
(d) To reduce the impact of inflationary rise in prices.
In India, public distribution system (PDS) has been adopted as a measure to keep the prices in check, reduce fluctuations in prices and ensure supply of essential commodities at reasonable prices, particularly for weaker and vulnerable sections of the society. It forms a major element in the government’s strategy for growth with social justice.
Expansion of public distribution system has been an important point of action in 20-point programme. Special emphasis is being given to increase the number of fair price shops in the hitherto under-served and unserved areas, and on organising mobile shops in far-flung regions. In order to make the public distribution system supplementary to the poverty alleviation programme, main thrust of expansion of fair price shops is in rural areas.
The public distribution system operates through fair price shops. The network of fair price shops has been expanding over the years. Their number has increased from 2.39 lakh in March 1979 to 4.6 lakh in March 2000. Special emphasis is being laid on opening of fair price shops in remote, far-flung and inaccessible areas, particularly covering tribal population.
With a view to ensuring that the essential commodities reach the farthest corners in hilly and inaccessible areas, the government provides financial assistance to purchase mobile vans. For north-eastern states, cent per cent subsidy is also provided to supply iodised salt and heavy sugar in small packets.
An efficient public distribution system requires a nexus between production, procurement, transportation, storage and distribution of the selected commodities brought under the system. In view of this, the Sixth Plan underlines the need for a selective approach and a certain flexibility in assessing the essentiality of commodities for public distribution.
The central government confines its responsibility to procure and supply seven essential commodities, viz., rice, wheat, sugar, imported edible oils, kerosene, soft coke, and controlled cloth. These seven commodities constitute the core of the public distribution system.
It is, however, not considered necessary that the public distribution system all over the country should have a standardised list of commodities. Different regions can have different needs and preferences, depending upon local circumstances.
Therefore, besides the above-mentioned seven items, the state governments are free to include in their public distribution system other commodities of mass consumption. Some states have included pulses, vanaspati, soaps, cycle tyres and tubes, torch cells, etc. for supply to consumers through fair price shops.
Centre, states and union territories have a joint responsibility in making the system of public distribution a success. However, the organisation and administration of this system in their territories are the responsibility of the concerned state governments and union territory administration.
The working of the public distribution system is periodically reviewed in consultation with state governments and corrective measures are taken from time to time. At the Centre, an advisory council on public distribution is functioning to review its working from time to time. In states, consumer advisory committee at district, block and taluka levels supervise the working of fair price shops.
Targeted Public Distribution System (TPDS):
In order to ensure availability of minimum quantity of food grains to the families living below the poverty line, the government launched the targeted Public Distribution System (TPDS) in 1997. It was intended to benefit about six crore poor families in the country. A two-tier scheduled price structure was adopted- (a) for families below poverty line (BPL) and (b) for families above poverty line (APL).
Antyodaya Anna Yojana (AAY):
In order to make TPDS more focused and targeted towards the poorest sections of population, the ‘Antyodaya Anna Yojana’ was launched in December, 2000 for one crore poor families. AAY contemplates identification of poorest of the poor families from amongst the BPL families covered under TPDS within the states and provide them food grains at a highly subsidised rate of Rs. 21- per kg. for wheat and Re. 1/-per kg. for rice.
While the allocation for BPL and AAY families are being made at the rate of 35 kg. per month per family, the allocation for APL families are being made depending on availability of food grains in the central pool.
National Food Security Act (NFSA) 2013:
The National Food Security Act (NFSA) 2013 seeks to provide for food and nutritional security, in human life cycle approach, by ensuring access to adequate quantity of quality food at affordable prices to the people in order to live a life with dignity. About two thirds of the population will be entitled to receive subsidised foodgrains under TPDS.
The beneficiaries are to be able to purchase 5 kg per eligible person per month of cereals at the following prices- (a) rice at Rs.3 per kg; (b) wheat at Rs.2 per kg; (c) coarse grains at Re.1 per kg.
(i) The distribution is particularly restricted to wheat and rice and there is very little procurement of coarse grains like jowar and bajra, which constitutes the staple food of millions of poor people in the country.
(ii) For a considerable period of planning, the public distribution system remained limited mostly to the urban areas and there was insufficient coverage of rural areas. Recently, however, certain states (such as, Kerala, Gujarat, Tamil Nadu, Andhra Pradesh and Karnataka) have extended the scheme to the rural areas on a regular basis.
(iii) The supplies of commodities are inadequate in view of the high proportion of population below of poverty line.
(iv) Wide coverage of public distribution system reduces the quota of ration per household and raises the cost of operating the system.
(i) The public distribution system should be considerably strengthened in the interests of the weaker sections of population in urban as well as rural areas.
(ii) The procurement effort should be intensified further to match the increased requirements of the public distribution system and to build up and maintains adequate stocks.
(iii) The other measures, such as zonal restrictions, regulation of private trade, bank advances, and forward trading in food grains may be tightened or relaxed according to the situation from time to time.
(iv) The management and administration of the system should be improved and made more efficient.
Finance is the life and blood of an industrial and commercial undertaking and is an essential element in all types of business activity. In trade, finance is required to meet the costs of getting merchandise into the hands of the final consumer. According to Pyle, “Money or credit is the lubricant that facilitates the operation of marketing machine.”
Financing of trade means the use of capital to meet the financial requirements of the agencies engaged in various trading activities. Thus, trading finance refers to the process of arranging finance for trading activities.
Manufacturers, wholesalers, retailers and consumers, all require funds, in their turn, to produce, sell and purchase goods. When a transaction takes place, both the purchaser and the seller expect to make or get payment either at the spot or within a reasonable period of time. If money is not available, credit is generally taken to make payments.
(i) Nature and volume of trading business;
(ii) Continuity of trading business during various seasons;
(iii) Necessity of keeping large stocks of merchandise in shortage;
(iv) Time involved between manufacture, its sale and payments;
(v) Ability to anticipate markets;
(vii) The rate of stock turnover
(viii) The terms of purchase and sale;
(ix) The possibility of being able to turn assets into cash profitably and quickly.
Businessmen require two types of finance:
I. Fixed or permanent capital; and
II. Working or current capital.
I. Fixed Capital:
The finance required for acquiring fixed assets, such as land, building, machinery, etc., is known as fixed capital. The investment made on these items is a long-term investment and is of permanent nature. In case of trading business, fixed capital is required for the provision of show-rooms, service centres, warehouse, automobiles and other fixed assets necessary for the distribution of products.
II. Working Capital:
The requirement of working capital for trade purpose is for shorter duration and is recurring in nature. It is needed for holding stocks of raw materials, inventories, finished and semi-finished products, and for meeting day-do-day expenditure in the form of wages, salaries, rents, advertisements, etc. The significance of working capital has increased in the modern times when production is usually based on anticipated demand.
Goods are not sold immediately after they are manufactured and there exists a time gap between production and sale. Thus, the replenishment of capital invested is delayed. The capital temporarily raised to meet this situation is known as working capital. It is also termed as circulating capital or revolving capital or floating capital, because such capital is recovered and reinvested repeatedly.
The need for working capital arises- (a) for carrying on the production and selling functions smoothly; (b) for meeting style and fashion changes confidently; (c) for meeting seasonal variations in demand confidently; and (d) for carrying stocks from a period of low return to a better period.
The need for working capital may be– (a) regular or permanent, and (b) variable or fluctuating.
(a) Regular Working Capital:
A part of the working capital is regular or fixed. The total amount of funds required for keeping current assets, like cash, raw materials, finished goods, accounts receivable and accounts payable, etc., represent the permanent working capital required, so long as the levels of production, sale and prices remain unchanged. Regular or permanent working capital is further of two types- (i) primary working capital and (ii) normal working capital.
(i) Primary Working Capital:
Primary working capital is the basic minimum working capital required for keeping raw materials and making such payments as wages, rent, etc. The regular credit provided to the whole sales and retailer, etc. also is regular in nature. The primary working capital requirements are irreducible minimum requirements. The primary working capital is as permanent as the fixed capital.
(ii) Normal Working Capital:
Normal working capital is required to maintain the operations of a company at an average normal level during a period in which business conditions are normal. The average normal requirements of working capital are not permanent and may vary in different periods. But, there is some regularity in this requirement.
(b) Variable Working Capital:
Availability of credit varies with the change in business activity. During busy periods, current assets have to be expanded and more working capital is required. On the other hand, during slack periods, the volume of current assets has to be contracted and consequently less working capital is required. Thus, variable working capital refers to the expansion and contraction of working capital in different periods.
Variable working capital is again divided into three categories:
(i) Seasonal working capital;
(ii) Cyclical working capital; and
(iii) Emergency working capital.
(i) Seasonal Working Capital:
A manufacturer needs seasonal working capital either for stocking raw materials or for holding the finished goods until the demand season. For example, in case of woolen industry, production continues throughout the year, but sale normally occurs only during winter season. In such a case, funds are borrowed temporarily and are repaid when the sales pick up.
(ii) Cyclical Working Capital:
Working capital requirement and its availability varies in accordance with the trade or business cycles. During boom periods, when the business and trade activities are at the peak, demand for temporary working capital increases, and the lending agencies provide such finance at a higher interest rate.
Conversely, during depression, when the economic activity almost comes to standstill, the lenders are unwilling to provide funds and the businessmen have to depend upon their own sources of finance.
(iii) Emergency Working Capital:
Special type of working capital is needed to meet certain contingencies, such as caused by natural calamities, excessive rise in prices, etc. Provision for such capital is made over and above the regular and seasonal working capital.
In trade, a concern may require special working capital to undertake an extensive marketing campaign in order to overcome severe competition or to introduce a new product in the market.
Different types of capital are raised from different sources:
(i) Fixed capital is raised from permanent sources, like shares, debentures and borrowing from special institutions providing long-term capital.
(ii) Permanent working capital is also obtained from permanent sources, preferably through debentures and redeemable preferential shares.
(iii) Variable working capital requirements are met purely through short-term borrowings.
Various sources of finance for internal trade can be broadly classified into two groups:
(a) External sources, and
(b) Internal sources.
Important external sources of finance are given below:
I. General Public:
General public forms the major source of finance for a business concern. Savings of the people are mobilised for industrial purposes by selling shares and debentures. The trading companies have also started accepting fixed deposits directly from the public.
II. Indigenous Bankers and Money Lenders:
Indigenous bankers and money lenders have been the important and easy source of working capital in the past. They particularly operated in the villages, provided finance to the small scale industries, and offered prompt, flexible and personalised services to the borrowers. At present, this source is fast disappearing due to the restrictions imposed by the Reserve Bank of India on the activities of indigenous bankers and money lenders.
III. Commercial Banks:
Commercial banks, which are the most active participants in the money market, generally provide short-term credit. Bank credit is perhaps the largest source of credit for business. Bank deposits are mostly used to provide advance to the customers.
IV. Financial Institutions:
Various financial institutions, other than commercial banks, also provide long- term and short-term finance for industrial and trade purposes. These institutions provide loans only after considering the profitability of the proposal and are generally rigid in their terms and conditions.
Finance is also made available from the internal sources of the trading business. Such finance is known as trade credit. Trade credit is provided for trading activities, i.e., for buying and selling operations. Selling goods on credit is very common in the business world.
In this case, accounts are opened in the name of the customers in the books of the seller for giving credit. No collateral security is offered for this type of credit. In other words, trade credit is purely based on the confidence created by the character and past records of the buyer in the mind of the seller.
Trade credit is of two types:
1. Mercantile credit, and
2. Retail credit or consumer credit.
1. Mercantile Credit:
The credit provided by the manufacturers or wholesalers to the retailers to purchase goods for resale purposes is known as mercantile credit. Mercantile credit may take the form of- (i) cycle billing or (ii) revolving credit plan.
(i) Cycle billing- it is a regular and continuous method of providing credit to the usual customers. Almost daily the articles are purchased; the bills are prepared and sent to the buyers. The buyer, in turn, makes rotational payments in the chronological order.
(ii) Revolving credit plan- It fixes a maximum amount of credit beyond which the credit facilities are not given. The customer is allowed to enjoy credit to the extent to which he pays.
The Rural Survey Committee has divided financial needs of agriculturists into the following three categories:
(i) Directly Productive i.e., money spent on cultivation and connected expenditure, such as, purchasing of land, livestock, etc.
(ii) Indirectly Productive, i.e., payments of taxes, personal expenditure, repayment of old debt.
(iii) Unproductive, i. e., money spent for social or religious ceremonies.
Sources of Finance:
Various organisations, both private and public, provide finance for agricultural marketing.
(i) Indigenous bankers and money lenders, despite their various defects and criticism, still form the largest source of finance to agriculture.
(ii) Cooperative Societies also play an important role in extending short and medium term loans.
(iii) Land Development Banks provide long-term finance to the agriculturists.
(iv) Agricultural Refinance and Development Corporation (ARDC) was set up in 1963 to provide refinance facilities to the banks for extending medium term and long term finance for the development of agriculture.
(v) The Reserve Bank of India, provides credit to agriculturists through state cooperative banks.
(vi) Commercial banks have also started supplying agricultural credit after their nationalisation.
(vii) Rural Regional Banks function exclusively for meeting agricultural needs.
(viii) In July 1982, National Bank for Agriculture and Rural Development (NABARD) was set up to take over- (a) all the agricultural credit functions of the Reserve Bank and (b) the refinance functions of ARDC.