All about internal trade – iPleaders

By admin Dec24,2023
Image source: https://blog.ipleaders.in/settlement-securities-carried-stock-exchanges/

This article has been written by Ziya ur Rahman Karimi. This article comprehensively talks about internal trade, its definition, categorisation, and challenges, and why it is all-important to the development of a nation. It explores the Government of India’s efforts to promote internal trade, the effect of the pandemic on internal trade, and the difference between internal trade and global trade.

Trade is an age-old practice that has contributed immensely to the growth and progress of human civilisation. Trade has helped in shaping societies and even connecting various societies together. The exchange of goods and services, whether within a country or cross-border, is definitely a testament to our ability to work together, adapt, and improvise.

International trade has assumed a prominent role in modern society. But we must not forget about an equally important topic, i.e., internal trade. To understand the importance of ‘internal trade’, one must understand what trade is and why it is so relevant. In this article, we are going to understand the same. 

At its core, trade is the exchange of commodities between two parties. Trade embodies the act of exchanging something one possesses for something one desires. This fundamental concept is what lies at the heart of economic transactions and human interaction. Trade has several elements, such as goods and services, buyers and sellers, transactions, etc. Trade can be seen occurring in various forms, from the barter system of early civilisations to the modern, complex financial system. The history of trade and the progress we have made are testaments to our ability to connect, cooperate, and evolve. 

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Historical perspective

The practice of trade can be found deeply mixed with the history of human civilisation. It can be traced back to the earliest societies that engaged in the barter system. A barter system is a system in which the direct exchange of goods and services is done without a medium for exchange, such as money. Such a system usually requires a party to have a commodity in excess and pay exchanges for the items that they are in need of. This simple act of exchange laid the roots for the complex trading economic system that we have today.

Historically, there were many important trade routes that were important for the exchange of commodities. The most eminent examples of trade routes are the ‘Silk Road’ and the ‘Spice Route’. The Silk Road, which was established in 130 BCE, connected the ancient civilisations of China and the Roman Empire. It acted as a cultural bridge that introduced new religious technologies and customs between the East and the West, and most importantly, it was used in the exchange of wool, silver, and gold from Europe. Later on, the Persians and the Greeks expanded the Silk Road from Turkey to India. The spice route was another major trading route that was a sea route from Japan to Europe, passing through the Indonesian islands, India, the Middle East, and the Mediterranean, and was mostly used for the trading of spices.

In today’s world, the barter system is no longer prevalent, as money has replaced it as a medium of exchange for commodities. It is due to various reasons, the most important of which is that it was far more feasible to exchange commodities than to find people who were willing to exchange surpluses.

Essence of trade

Trade can be easily understood as the buying, selling, or exchanging of goods or services between two consensual parties. The essence of trade has been explained under the following headings:

Goods and Services

Trade includes the exchange of both goods and services. Goods include products, both tangible and intangible. Tangible goods such as clothes, food, houses, cars, etc. can be felt physically, while intangible goods include apps, software, patents, etc. Services, on the other hand, include a lot of activities such as healthcare, education consultations, etc. The list is never-ending, and such diversity in goods and services reflects the vastness of human needs and desires.

Buyers and sellers

Trade involves two parties: buyers and sellers. The buyer seeks to purchase or acquire goods and services to satisfy their needs or desires, while the seller offers these goods and services in exchange for remuneration, which is usually money. Trade can take place at various levels, from individual transactions to between two states, two countries, or a group of countries.

Transactions

These are the actual exchanges that take place in trade. It is usually in the form of a transfer of ownership of goods or the delivery of services in return for some form of payment. The form of payment can vary from cash purchases to credit transactions to digital payments in today’s world, facilitated by modern technology.

Thus, it can be clearly said that the essence of trade is the exchange of goods and services between two or more parties. This is an important aspect of  economic activity as it allows individuals to acquire products that they can’t produce themselves.

Trade also improves the efficiency of resource allocation and specialisation. Through trade, resources are diverted towards their most efficient use to obtain maximum productivity. For example, in India, the state of Uttar Pradesh is rich in agricultural land. It is much more efficient to allocate resources and specialise in agriculture in the state than to do mining. The state can also export agricultural products to other parts of the country where there is a lack of fertile land, such as Rajasthan. In return, it can import other goods from states that produce them more efficiently. Such resource allocation through trade optimises production and ensures that the resources are not wasted. It allows a country to use its resources at maximum productivity so that it can have an advantage over others at what they do best.

Internal trade refers to all the economic activities that take place within the boundaries of a country. According to the National Council of Educational Research and Training, internal trade is the buying and selling of goods and services within the boundaries of a nation. Whether the products are purchased from a neighbourhood shop in a locality, a central market, a mall, or even from any door-to-door salesperson or from an exhibition, all these are examples of internal trade as the goods are purchased from an individual or establishment within a country. For this reason, it is often referred to as domestic trade.

It covers all the buying and selling of goods and services among individuals, business houses, corporations, and all other entities operating within a nation. No customs duty or import tax is levied on such trade, as goods and services exchanged are part of domestic production and are meant for domestic consumption. This type of economic exchange is fundamental to a nation and plays a pivotal role in shaping its economic landscape. It is the lifeblood of a nation’s economic prosperity.

The scope of internal trade is vast, as it covers all the economic activities within a nation, ranging from small-scale retail transactions to large-scale wholesale exchanges. All the movement of goods and services within a country is included within its scope. It is generally categorised into two categories: retail trade and wholesale trade.

Retail trade

Retail trade is the most visible aspect of internal trade for the common man. It involves the sale of goods directly to the end consumer. Goods are sold in businesses like local shops, supermarkets, grocery stores, malls, e-commerce platforms, etc. The retailer serves as an intermediary between the wholesaler and the consumer. He provides services such as the publicity of goods to wholesalers and makes products easily accessible to consumers.

Wholesale trade

Wholesale trade involves the buying of goods directly from the manufacturer and then reselling them to retailers, where they are eventually sold to end consumers. Wholesalers generally purchase goods in bulk from the manufacturer, store them, and then resell them to the retailer. They play a crucial role in the supply chain, ensuring a steady flow of products to retailers.

There is also one other important aspect of trade, i.e., the intermediaries. Intermediaries like distributors, agents, and brokers facilitate the internal trade and make the process run smoothly by connecting buyers and sellers. They often work in and specialise in specific sectors and assist in marketing, negotiations, and logistics.

Differences between internal trade and international trade

Serial No. Basis of Differentiation Internal Trade International Trade
1 Geographical Boundaries It involves the exchange of goods or services within the borders of a single country. It involves the exchange of goods or services between different countries or a group of countries.
2 Regulatory Framework Requires to follow the domestic laws and revelations of a specific country. Requires compliance with the laws of multiple countries, such as customs regulations, foreign policies, etc.
3 Currency The transactions are usually conducted in the national currency of the specific country. The transaction may require currency conversion and may involve multiple currencies.
4 Export and import All exports and imports are done within the country. It involves exporting goods and services from one country and importing them from another, and vice versa.

Importance of internal trade in the economic development of a nation

Internal trade plays a pivotal role in a nation’s economic development in several ways. Significant ones are discussed below:

Economic growth

Internal trade contributes significantly to our nation’s development and economic growth. It contributes significantly to the nation’s gross domestic product (GDP). It does so by promoting economic activity, creating jobs, and generating revenue.

Market access

It provides consumers with easy access to a wide range of goods and services, encompassing their every need and desire and thereby enhancing their quality of life and consumer choices.

Industrialisation

Internal trade supports the growth of industries in a country. Through efficient resource allocation, it ensures smooth and proficient distribution of raw materials, intermediate products, and finished goods within a country.

Regional development

It helps reduce economic inequality by promoting specialised economic activities most suitable to various regions of the country. Thus, ultimately resulting in a balanced development.

Entrepreneurship

Internal trade encourages entrepreneurship and the establishment of small and medium sized enterprises (SMEs). India has witnessed tremendous growth in these in the past few years. They create business ownership and growth.

Government revenue

The taxes that are levied on internal trade transactions generate a whole lot of revenue for the government. In India, Goods and Services Tax (GST) is the main tax levied on such transactions. The revenue generated can be reinvested in infrastructure projects, healthcare, education and other sectors of public welfare.

Internal trade can be categorised into two types: wholesale trade and retail trade.

Wholesale trade

Wholesale trade is a crucial aspect of internal trade. We have discussed it briefly before, but now let’s discuss it in detail. Wholesale trade serves as an intermediary link between the manufacturer and the retailer. It involves the purchase of goods in bulk quantities from the manufacturers and then subsequently selling them to retailers. Wholesale trade operates at a scale that allows for large-scale economies to grow. It plays a pivotal role in the efficient distribution of products.

Functions of wholesale trade

Wholesale trade performs a large number of functions, including transportation of goods, storage, marketing, etc. We can divide them into the following:

Services to manufacturers and services to retailers

Wholesalers usually take small quantities of orders from a large number of retailers. Then they, in turn, place a large order with the manufacturer, which facilitates large-scale production of commodities. And thereby take advantage of the economies of scale.

Bearing risk

The wholesale dealers usually take goods in their own name. They take the goods from the manufacturer and store them in their godowns or warehouses. In this process, they bear the risk of fire, spoilage, a fall in prices, etc., which would otherwise have to be borne by the manufacturer. They relieve the manufacturer of such risks so that he can focus on production only.

Financial assistance

The wholesalers generally provide payment in cash to the manufacturer so that production keeps on continuing. At times, they even pay a lump sum of money in advance so that the manufacturer may be able to produce a whole lot of products in time.

Expert advice

At times, the manufacturer is cut away from the consumer’s emotions. It is the wholesaler who is in contact with the market, and he provides important information to the manufacturer, such as customer preferences, market conditions, competitive activities, etc.

Help with marketing

The wholesaler takes orders from retailers spread across a large geographical location. This helps in the marketing of the manufacturer’s product, relieves the manufacturing cost, and allows the focus to be on production.

Storage

The wholesaler takes delivery of goods after they are produced in the factory. Then they store the products in their godowns or warehouses. They bear all the risks of falling prices, fire, spoilage, etc., thereby reducing the burden on manufacturers.

Facilitate production continuity

Wholesalers facilitate the continuity of production by purchasing the products all year long, reselling them to consumers, and thereby creating more demand.

Services to retailers and availability of goods

The retailer usually maintains small quantities of stock of various commodities. When their stocks are depleted, the manufacturer is always ready with more stock in their warehouses for their purchase. It helps the retailer avoid keeping a large inventory and collecting goods from several manufacturers.

Marketing support

It is the manufacturer who advertises the product and does all the marketing, and this in turn helps the retailers sell more of the product.

Grant of credit

The manufacturer usually purchases from the producer in cash, but they also extend credit facilities to their regular retailers. This helps retailers manage their businesses with a relatively small amount of working capital.

Specialised knowledge

Retailers usually deal in a varied range of products, whereas manufacturers deal in a small sector of products. They develop specialised knowledge over the years of working in that sector and then pass down the knowledge to the retailers, which is very beneficial. They tell the retailers about new products, their uses, quality, prices, allocation of shelf space, the decor of the outlet, etc.

Risk sharing

The manufacturer purchases the product in large quantities and sells it to the retailer in small quantities. This helps the retailers avoid the risk of large storage, the risk of fluctuating prices, etc.

Retail trade

Retail trade is the final link in the supply chain that connects the products to the end consumer. It involves the sale of the goods ultimately to the end consumer, usually for personal consumption. They can be seen in the form of itinerant retailers, departmental stores, malls, general stores, local shops, vendors, door-to-door salesperson, etc. It adds an intermediary link between the wholesaler or manufacturer and the consumer. They play a pivotal role in making the product easily accessible to the general public.

Functions of retail trade

The retail trade performs a number of functions. They can be divided into the following:

Services to wholesalers and services to consumers

The most important service, which is the final sale of products to the end consumer, is done by the retailer. Retailers are generally scattered in a large geographical area, thereby helping in the distribution of goods in a large area.

Personal selling

The retailers are the ones who personally sell to the end consumer. The manufacturer and the wholesaler are not seen by the general public, but it is the retailer who undertakes personal selling efforts and relieves the other two of actualizing the sale of products.

Enabling large-scale operations

The retailer sells the product in small quantities to a large number of people. This relieves the manufacturer and wholesaler of making individual sales to the consumer in small quantities and focusing on large-scale production.

Collecting market information

As the retailer remains in constant contact with the consumer, he provides more reliable information to the manufacturers and wholesalers about market emotions, trends, preferences, and the attitude of customers.

Help with promotion

Manufacturers and wholesalers from time to time carry out promotional activities such as free gifts, discounts, coupons, lucky draws, etc. Retailers participate in these activities to benefit customers and, thereby, help in the promotion of the products.

Services to consumers and regular availability of products

The most important function that retailers provide to consumers is the regular availability of products. The consumer is not able to travel long distances to different wholesalers to get these products; they should be readily available with the retailers in their area. This helps consumers buy the products they need.

New product information

Through personal selling efforts and by arranging for effective display of products, the retailers provide information about the new products to the customers. They make the customers aware of the product’s arrival date, uses, price, special features, etc. This helps in the decision-making process of the consumer.

Convenience in buying

As the retailers are situated in the neighbourhood of the consumer, they provide the real convenience of buying goods from the consumers as and when they desire.

Wide selection

Retailers generally store a small stock of a variety of products, thereby giving consumers a wide selection of products to choose from. This helps the consumer choose the best product out of the wide selection of goods.

After-sales services

After-sale services such as home delivery, arrangement of spare parts, and attending to customer complaints are done by the retailers, as they are the ones who are in direct contact with the consumer. This becomes an important element in the consumer’s choice to purchase the same product again.

Provide credit facilities

Retailers also provide credit services to their regular customers, which increases their level of consumption and thereby their standard of living.

Evolution of retail trade

In the past few decades, the traditional system of retail trade has undergone a drastic transformation. This transformation is driven by technological advancement. Now, retail trade can be seen in two formats:

Brick and mortar retail

It refers to the traditional style of retail, which includes physical stores. In these stores, consumers can come and browse products according to their needs. They can choose from a variety of products, feel them physically, make purchases on-site, and receive the product immediately. These stores can range from huge department stores to local shops. Often, the retailer undergoes personal selling effort, sensory engagement, and face-to-face customer service to help the consumer choose the best product according to their needs. These stores are still thriving, but the rise of e-commerce has drastically changed the industry.

E-Commerce

E-commerce stands for electronic commerce, and it involves the selling of goods online over the Internet. It has witnessed exponential growth over the past few decades due to the easy accessibility and convenience of the Internet. They provide you with a wide variety of products to choose from just by scrolling on your device while sitting at home.

E-commerce platforms like Amazon, Flipkart, and Meesho have changed the Indian retail trade. They provide you with a vast variety of products 24/7, including doorstep delivery, cash on delivery, etc. You can make purchases anytime, anywhere, providing a lot of convenience and avoiding the hassle of going to a physical store. Nowadays, even groceries can be delivered online in under 10 minutes on platforms such as Blinkit. All these features have revolutionised the retail trade industry, making them a dominant force.

Role of Micro, Small, and Medium-sized Enterprises (MSMEs) in retail

Over the years, micro, small and medium-sized enterprises (MSMEs) have played a pivotal role in the retail sector of trade. Owing to its importance, the Government of India has also launched various schemes to help the MSMEs in the country. The most important of which is the Emergency Credit Line Guarantee Scheme (ECLGS), which has delivered additional credit to more than 130 lakh MSMEs. Some reasons that contribute to its diversity and dynamism are:

Niche marketing

MSMEs usually specialise in niche markets and unique products. They cater to a specific line of consumers looking for specific products according to their preferences, which may not be met by large retailers. Examples of such markets can be Khadi materials and products, handicrafts, etc.

Local presence

Many MSMEs are locally owned and operated. They operate in the locality and help develop a sense of local identity and community development.

Innovation

MSMEs can be really adaptive and agile in adapting to new market trends. They adopt innovative retail strategies to respond to changing market trends and consumer demands.

Job creation

They create a significant number of jobs for the local people, thereby increasing local employment and economic stability.

Entrepreneurship

It provides a great and accessible platform for entrepreneurs to start their entrepreneurial journey and grow their businesses. Play often fosters entrepreneurial spirit and innovation in the retail sector.

Intermediaries are a critical component of internal trade. They are also known as middlemen. They are usually independent and help facilitate the movement of goods and services from producers to end users. They connect buyers and sellers and perform various functions to streamline the trade process. They are not manufacturers, wholesalers, or retailers, but they help them efficiently manage the trade process. Distributors, agents, brokers, etc. are all examples of intermediaries.

Distributors and agents

Distributors

The distribution of goods is a fundamental function of the trade process. The distributor plays a vital role in this distribution process. The distributor purchases goods from the manufacturer, or wholesaler, and supplies them to the retailer and even sometimes to end consumers. They often have a well-established distribution network, allowing them to transport goods to various locations of sale. They provide a vital link in the trade process, ensuring that the products are readily available to consumers.

Agents

Agents act as intermediaries on behalf of either the buyer or the seller. They connect the interested parties in the trade and negotiate, representing one party’s interests. They usually specialise in specific industries or sectors. Using their expertise, they often garner favourable terms and prices for their party. They are also a crucial component of international trade, as they help foreign businesses navigate the local market.

Impact on Efficiency and Accessibility

Intermediaries such as distributors have a great impact on the efficiency of the trade process. Intermediaries help streamline and smooth trade operations by reducing the complexity of the direct transaction between manufacturer and consumer. They specialise in logistics, negotiations, and market knowledge, all of which contribute to making trade more efficient. Distributors have a large network of distribution channels through which they contribute to an efficient supply chain. They buy products from various manufacturers and ensure timely delivery of the same to retailers.

Intermediaries also enhance the accessibility of products due to the large distribution network of the distributors. They can cater to the needs of a large geographical area of consumers. They can even reach distant markets that would otherwise be difficult to reach. They also help foreign businesses navigate the local market efficiently and smoothly. They can help break down regulatory and cultural barriers, expanding their accessibility to the market.

Emerging trends in intermediary services

With the advancement of technology, intermediary services are also evolving. This evolution is fueled by technological advancement, changing consumer behaviours, and global and internal market dynamics.

Digitalisation of intermediary services

With the rapid digitalisation of the world, intermediary services are also digitising themselves. Online platforms are the new marketplaces to connect buyers and sellers for these intermediaries. They also help to expand the market reach to never seen extents.

Data-driven decision making

The increase in data science technology has resulted in intermediaries increasingly using data analytics to make more informed decisions. Market trends, consumer behaviour, supply chain data, etc.—all of these things are thoroughly analysed, and then an output is generated that is used to optimise the services. This results in offering better insights to their clients.

E-Commerce integration

With the advent of e-commerce platforms such as Amazon and Flipkart, many intermediaries have started integrating e-commerce into their services to provide seamless online ordering and delivery.

Globalisation

Globalisation has resulted in increased cross-border trade, which has opened up new opportunities for intermediaries specialising in international trade. They help foreign businesses and firms navigate complex international regulations and customs processes.

Sustainability and ethical practices

Nowadays, there is an increasing demand for responsible consumption by consumers. To meet these demands, intermediaries are increasing their focus on sustainability and ethical practices. They facilitate the production of sustainable products and promote fair trade practices.

In 2019, the Government of India changed the name of the Department of Industrial Policy and Promotion (DIPP) to the Department of Promotion of Industry and Internal Trade (DPIIT). Earlier, matters of internal trade were under the domain of the Ministry of Consumer Affairs, but now they have been brought under the Ministry of Commerce and Industry. It was done in response to a long-time demand from the Confederation of All India Traders (CAIT), which demanded a separate ministry for internal trade. Retail trade is done by more than 5,00,00,000 businesses in the non-corporate sector and provides employment to over 46,00,00,000 people in India. It contributes to 45% of the national gross domestic product (GDP). The Confederation of All India Traders welcomed the government’s step and said that this step would bring retail trade into the mainstream of the economy.

Role and functions of the Ministry of Commerce

The Ministry of Commerce is responsible for formulating and implementing growth strategies for the industrial sector, along with other socio-economic objectives and national priorities. Established in 1995, the original DIPP was used to oversee industrial policy formulation. After the renaming, in addition to previous responsibilities, the department is now in charge of four new categories of responsibilities. It includes the promotion of internal trade, including retail trade, the welfare of traders and their employees, matters relating to facilitating ease of doing business, and matters relating to startups. Its functions are instrumental in improving the economic growth of the country, ensuring fair competition, and facilitating the efficient flow of goods and services in the country. Some major roles and functions of the Ministry of Commerce in Internal Trade are:

Trade policy formulation

The Ministry formulates trade policies that increase trade in the country and align with the country’s economic goals. They make policies on all aspects, such as levying taxes, import and export regulations, trade agreements, etc.

Regulatory frameworks

Regulation of the industry is a major and vital function of the ministry. Without regulations, big businesses may take advantage of smaller businesses, resulting in monopolies in industries. The ministry oversees regulations related to competition, consumer protection, intellectual property rights, and various other aspects to ensure and maintain a fair and competitive marketplace for everyone.

Market access

India is a vast country with 28 states to ensure market access for products from every region of the country. Is a priority of the ministry. It works to eliminate trade barriers and balance regulations so that goods can be traded to and from every part of the country, thus helping to create a unified national market.

Export promotion

With rapid globalisation and cross-border trade, the ministry also focuses on the exportation of the products that are produced in the country. It supports exports so that the country can be in a trade surplus, which will then in turn generate more employment and increase the value of currency. It promotes this by giving export incentives and trade facilitation measures.

Industry support

Another integral part of the ministry’s work is to collaborate with industry associations such as the Indian Chamber of Commerce (ICC). It helps the ministry understand the industry more specifically and develop strategies accordingly to enhance trade and competition.

Schemes and programmes

The Ministry of Commerce is responsible for various acts, such as the Industrial Disputes Act of 1947. It has also helped the government launch several schemes and programmes to promote internal trade and economic development. Some of such programmes have been discussed in the following:

Make in India

Make in India was an initiative by the Government of India launched in 2014. Its primary focus was to promote India as the preferred global manufacturing location. It is intended to boost the domestic manufacturing sector and also bring investment into the country. It focused on attracting foreign investors and adopted export-oriented growth. It encouraged companies worldwide to develop, manufacture, and assemble products in India. It also provided incentives for investments in manufacturing. Promoting the production of goods within the country is intended to boost internal trade and reduce import dependence on other countries.

Digital India

Digital India was yet another initiative of the Indian government that was launched back in 2015. It was a programme that aimed to make government services available to citizens electronically. Its main goal included improving the existing online infrastructure, increasing Internet connectivity, making the country digitally empowered, and reducing corruption and processing costs while creating inclusive growth in areas of products, manufacturing, electronic services, and job opportunities. It has helped to deliver services to beneficiaries in a transparent and corruption-free manner.

Startup India

Startup India was launched in 2016. It is intended to support the startups in India by providing them loans ranging from 10 lakhs to 1 crore, fast-tracking startup patent applications, a panel of facilitators to help with IP applications, and giving rebates on application filing fees. The government also offered a free online entrepreneurship programme to create a strong ecosystem for innovation and entrepreneurship in the country. This was aimed at driving economic growth and will result in the creation of more jobs. It encouraged entrepreneurship and attracted investment, which resulted in India being the 3rd largest startup ecosystem in the world. According to government reports, the number of startups increased from 452 in 2016 to 84,012 in November 2022.

Atmanirbhar Bharat

Atmanirbhar Bharat translates to ‘Self-Reliant India’. It was a campaign announced by the Government of India that aims to help India recover from the economic impact of the coronavirus pandemic. It was announced in 2020 and aimed to make the citizens of India independent and self-reliant. There were five pillars of the campaign, i.e., economy, infrastructure, systems, vibrant demographics, and demand. It is an improved version of the ‘Make in India’ scheme. The government announced an economic package of Rs. 20 lakh crores for this campaign.

Collaborations with industry associations

Industrial associations are formed to promote their common interests and goals. The Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) are such examples. Organisations or trade bodies function as the national guardians of trade, commerce, and industry. The Ministry of Commerce actively collaborates with such industry associations and trade bodies. They collaborate to address industry-specific problems and challenges and promote internal trade. It is done by:

Policy advocacy

The Industry Association works closely with the ministry and puts forward the demands of business houses and traders to the ministry. They try to push the ministry to enact laws that would benefit the traders. One such example would be the recent renaming of the Department of Industrial Policy and Promotion (DIPP) to the Department for Promotion of Industry and Internal Trade (DPIIT). This brought internal trade under the Ministry of Commerce. It was done in response to a long-term demand from the Confederation of All India Traders (CAIT).

Capacity building

These collaborations involve capacity-building initiatives, training programmes, etc. All these efforts empower businesses, mostly small and medium-sized, to enhance their competitiveness and contribute to their overall development.

Market access

These industry associations also work closely with the government to secure market access in foreign markets. They tried to resolve trade-related issues in international trade so that efficient and smooth international trade could take place.

Information dissemination

The Ministry and trade associations work together to provide information to businesses, such as market research and industry trade. This, in turn, helps businesses make informed decisions about their operations and investments.

In the era of the internet and digital technologies, when everything is becoming digitised, internal trade is also reshaping itself in a never-seen digital form. The digital revolution in the world has impacted the way we conduct internal trade. The trades are now becoming more engaging for both consumers and businesses. Some key innovations are discussed below:

Technological Advancements

Digitalisation of business operations

Internal trade has been shifting towards digitalisation for some years now. The businesses and the sellers are opting for digital methods for performing various operations that were earlier done manually. Operations like data handling, data management, inventory management, order handling, payments, and customer relationship management are done digitally. Many software programmes, like Tally Reporters and inventory management systems, are being used for the above purposes. This has streamlined their operations and thus helped the trade grow in other aspects. 

Internet of Things (IoT) in retail

The IoT sensors are introduced in the marketplace for business advancements. These sensors not only keep track of the commodities but also make sure that anything does not go out of stock. These sensors also monitor supply chain insights and inventory safety. With the introduction of IoT technologies, it is made sure that nothing is overstocked or understocked and that the focus remains concentrated on the customer’s satisfaction and needs.

Big data analysis

Many retailers use new technologies like data extraction, data mining, and data analytics to analyse the needs of the user on the basis of the data they receive. This analysis of the data has helped them make a decision about what products are bestsellers. They can also predict the market price and the bestsellers of the upcoming season, which gives them an edge, and they can stay prepared and strategize their trading methods.

The role of e-commerce platforms and digital payments

E-Commerce Platforms 

E-commerce platforms have gained popularity ever since they were introduced in the country. Many e-commerce platforms like Amazon, Flipkart, Meesho, etc. have given rise to the trade since they are easy to use and reliable. The very fact that consumers can buy anything without having to go anywhere makes it a viable choice for them to engage more with e-commerce platforms for shopping.

Not only have these platforms given consumers an edge, but they have also given many businesses and startups a reliable way to reach out to a global audience and sell their services. Many small businesses are taking up online platforms like Amazon, Flipkart, and others to expand their businesses and reach a greater audience.

The blend of shopping with safe payment gateways like Razorpay and easy access to products globally has immensely increased the opportunities for all types of businesses to grow.

Digital payments

Now the payment methods are not only limited to cash, but the emerging new payment gateways like UPI, credit/debit cards, and even contactless payment methods like mobile wallets let you pay even when you do not carry cash. The convenience of the payments has led consumers to rely less on cash. Digital payments have made it more efficient and traceable to make transactions in internal trade.

Supply chain innovations

Blockchain technology

This is a recently developed technology that enables suppliers to keep track of the transactions made by users in a secure manner. All the records recorded are transparent and traceable, which makes it less questionable on the ends of both the users and the suppliers. It is generally used in industries like food, pharmaceuticals, and beverages to trace the origin of the products.

Automation and robotics

Various big businesses and startups with a large audience are using automation and robotics for the purpose of task fulfilment. Tasks like picking and packing of the orders, delivery to the agents, and many more are fulfilled autonomously, which reduces the completion time and the labour cost, making it efficient for the business and cutting out their major expenses.

Demand forecasting algorithms

These algorithms use data mining to work on large amounts of data and predict the patterns of market trends. These algorithms help the suppliers stay prepared for the upcoming seasons and give them market insights in a better way. These algorithms have made the optimisation of the inventors easy to do work with fewer worries.

Sustainable practices and eco-friendly initiatives

Green Packaging

With the increasing concern of the pollution levels in the environment, many suppliers are adopting an eco-friendly way of packaging their products. They use materials which do not harm the environment and are easily reusable or decomposable. Alternatives to plastic bags are introduced in terms of paper bags, which do not harm the environment.

Efficient Transportation

The transport agencies are trying to reduce fuel emissions and package travel costs by optimising the routes to deliver the products at a particular destination. They are using various algorithms in order to save fuel emission and reduce pollution. Many agencies are also providing electric vehicles for the delivery of the products, thus contributing to a greener supply chain.

Circular Economy

This is a new methodology to reduce the consumption of resources. Many companies are opting for this technique. This model encourages manufactures to remanufacture the product, thus reducing the need for new resources. The manufactures redesign the products and help the consumers reuse them.

Sustainable Sourcing

Sustainable sourcing is a way of selecting suppliers who are socially, ethically, and environmentally focused in providing the services. In today’s era of increasing supply chains, many companies are exposed to the risk of lower costs and greater production capacities. These risks may include the possibility of supply disruption, cost volatility, threats to brand reputation, and many more. Therefore, companies are turning themselves in incorporating sustainable sourcing in their supply chain methods to reduce the risks to the companies and meeting the expectations of the stakeholders. 

Internal trade, as we have seen, is an important aspect of our nation’s economic growth. But there are various hurdles which are faced by traders in internal trade. These hurdles can be regional, industrial, or regulatory. By analysing them, we can find some common challenges which traders face.

Common challenges faced by traders

Market imperfections

Monopoly and oligopoly power

Monopoly and oligopolies are not good for market competition. They are big players which dominate businesses in specific sectors or industries. Industries such as cement, steel, aluminium, etc. are all examples of oligopolistic markets. They dominate the market due to their large presence and influence, and they restrict the small players from entering the market. Due to less competition, they can price their products as they will.

Disparity in information accessibility

The market, no matter how hard one tries, is not a level playing field. There are some big players in the market who can get access to market information earlier than everybody else. This gives them an edge over the others in the market. This disparity in information can also lead others to make uninformed decisions and restrict efficient trade.

Lack of transparency

There is also a lack of transparency in the market. When you go to the market, you can see some products have a full list of ingredients displayed, while others display a few ingredients. Also, a lot of chemicals are hidden under the label of preservatives. Moreover, the marketing gimmicks used by companies make it difficult for buyers and sellers to both determine fair prices and assess the quality of products.

Regulatory hurdles

Complex regulations

The market is subjected to various regulations to avoid monopolies and level the playing field for everyone. But sometimes, regulations governing internal trade can be complex, with a lot of rules and compliances to be followed, which makes it difficult for a businessman to understand. This discourages small businesses from participating in formal trade. Various regulations at the state level can create confusion and administrative burdens for businesses engaged in interstate trade. The government has tried to solve the issue by replacing various state and central taxes with one tax, GST. But still, the problem is far from solved. 

Interstate barriers

India is a quasi-federal nation. States enjoy autonomy and can govern themselves, imposing taxes as they like. But sometimes, due to every state levying their own regulation, it makes it difficult for traders to do inter-state trade. Import restrictions such as taxes and administrative barriers, inadequate infrastructure in some states, and bureaucratic delays are some examples of interstate barriers.

Licences and permits

Obtaining licences and permits for a specific trade can be a real hurdle in the trading process. Due to red tapism and administrative delays, traders often find it difficult to obtain their licences and permits on time. This restricts the trade process. The Indian economy from the 1950s to the early 1990s was also known as the Licence Raj or Permit Raj, due to strict government control and difficulty in obtaining licences and permits. But now the government is putting in efforts trying to minimise the delays and make the system smoother for everyone.

Logistical issues

Transportation challenges

Efficient transport is a critical aspect of internal trade. If the goods do not arrive on time, it results in losses for both the buyer and seller. Poor infrastructure, inter-state trade barriers, high traffic, and high transportation costs can all restrict the movement of goods.

Supply chain disruption

Another major logistical issue is supply-chain disruption. The supply chain can be affected by various factors, such as reduced production due to lack of resources, natural disasters, frequent labour strikes, etc. All these can affect the availability of goods on the market and lead to increased fluctuations in prices and market instability.

Inventory management

Some businesses, due to poor management or unethical practices, understock or overstock their goods. This results in financial losses, fluctuations in prices, increased carrying costs, difficulties in responding to changes in demand, and inefficiencies in internal trade.

Storage

The storage of goods is a vital aspect in the supply chain. If the storage facilities are not well equipped and up to the mark, then it may lead to spoilage, damage, and deterioration of products, affecting the availability of goods in the market.

Impact of technology on traditional internal trade

With the advent of e-commerce, the traditional internal trade model has also transformed. Traders now have to keep up with rising technology to make them relevant in the market. Change always comes with some problems. Some of them are:

Rise of e-commerce platforms

E-commerce platforms such as Amazon, Flipkart, and Meesho have modernised the way shopping is done. It changed the earlier brick-and-mortar style of retail and disrupted the traditional business model. It provides customers with convenience, as they can shop by just sitting at home and scrolling on their device. It is also adapting and improving day-by-day to keep up pace with the changing consumer demands and providing consumers a seamless shopping experience. They provide services such as door-to-door delivery, cash on delivery, and after sale services are also good. This has drawn away customers from traditional physical stores and towards these platforms.

Direct-to-consumer (D2C) models

With the help of these e-commerce platforms, the manufacturers can now directly sell to the consumer. They can bypass intermediaries, the wholesalers, and the retailers, saving a lot of cost for the end consumer and offering them great deals. They can also develop their own e-commerce platforms and sell their products there. This model of sale is known as Direct-to-Consumer (D2C) model. This puts in question the role of wholesalers and retailers in the supply chain.

Changing consumer expectations

Nowadays, shopping is not just about buying what is necessary. It has become more of a fashion statement and changes with a change in trends. The rise of technology elevated consumer expectations to greater levels. It has helped in providing convenience and personalisation to consumers.

Digital divide

In a country like India, there is an unequal excess of technology. This creates disparities in the participation of traders in the digital economy. Small retailers and marginalised communities such as banjaras often lack these technologies and often find themselves in the backfoot of the digital trade process. The government has tried to reduce this digital divide, but there is still much more to do.

Sustainability challenges in internal trade

Rapid climate change and increasing global warming have become pressing concerns in today’s world. Governments all around the world and consumers are pushing for environmentally sustainable products which will have less impact and cause less damage to the environment. In response to these changes in demand dynamics, trade businesses are facing environmental, social, and ethical challenges.

Environmental sustainability

Reducing carbon emissions

The transportation of goods, be it via land, air or water, contributes to carbon emissions. Fuel is burned in carrying goods from one place to another, in factories during production, which contributes to global warming. There is an increasing need to reduce the carbon footprint of internal trade.

Improving waste management 

A lot of waste products, such as plastic wrappers, straws, etc., are left during internal trade. It is vital to dispose of them in an eco-friendly manner so that they may not end up in water bodies such as oceans, rivers, etc. polluting them.

Product life extension

The product’s life should be extended by the repair or recycling of old products. This in turn will reduce the demand for new production and, therefore, reduce resource consumption.

Social responsibility

Fair labour practices

Often, labour involved in the trade process are exploited. They are paid meagre salary due to unsafe working environments, lack of protective gear, and long hours of work. The government has recently codified 29 labour laws into four to address the problem. It is a serious issue involving human rights also.

Community impact

Small and local businesses should be supported to make a positive impact in the community. It helps in developing an entrepreneurial environment and creates a safe and viable environment for business.

Ethical challenges

Ensuring supply chain transparency

Traders should ensure transparency in their supply chain. This will help consumers avoid products which are a result of child labour, bonded labour, or human rights exploitation. It will force businesses to adopt fair labour practices.

Sustainable sourcing

There is an increasing demand for green and eco-friendly products. Products which have less carbon footprint and are sustainable are on trend. Businesses should adopt and capitalise on such eco-friendly trends.

As COVID-19 hit the whole world, it hit the country and its internal trade in an unexpected manner. It challenged the internal trade of the country. It rattled the supply chains of the suppliers and changed the thought process and attitude of the consumers towards the product purchase. Many startups, and small businesses, and economy sharks have called it a test which tested the resilience of the trade and businesses.

Impact of COVID-19 on internal trade

Supply chain disruption

The countries around the globe imposed a strict lockdown in order to control the situation of the pandemic. The sudden lockdown and quarantining of the people of the country completely disrupted the supply chain. This was due to the fact that no supplies of raw materials could be made, which led to a shortage of essential goods and raw materials.

Shift in consumer behaviour

It is evident from the statistics that the boost in the online platforms and e-commerce websites was seen during and after the pandemic. Post COVID-19, people shifted to the online mode of purchase rather than the traditional method of street shopping. This happened due to the pandemic, as the majority of places were under lockdown and people did not want to go outside out of security concerns. This gave a boost to the online purchase of goods and services and turned out to be a turning point for the digital revolution and traditional retail patterns.

Economic uncertainty

The pandemic gave rise to uncertainty in the economic patterns of businesses. The consumer’s overall expenditure patterns got affected, and so was the demand for the goods and services. Many startups failed to withstand this uncertainty, and hence they collapsed.

Small business challenge

Due to the safety concerns of the people, many consumers started to shop online, which affected small and medium-sized business owners, and their businesses started to collapse due to the disruption in cash flow, the delayed payments, the increased investment, and the lower returns.

Lessons learned and adaptations made

“Harsh circumstances lead to new beginnings.” This was proven when the pandemic hit. The never seen circumstances arose in front of the people, and it was important to adapt to those challenges in order to sustain. Many learnings were adapted by the people. Some of the key learnings are listed below:

Digital transformation

Businesses started to take their traditional retail businesses to online e-commerce platforms like Amazon and Flipkart to accelerate their business growth. They made use of contactless payments like mobile wallets,UPIs, and online marketing.

Supply chain resilience

After the major disruption of the supply chains during the pandemic, the major focus of the people turned to making the supply chains strong and resilient to such conditions. Companies started to make sustainable models and diversified their suppliers. They started to invest in technologies for real-time visibility of the suppliers.

Remote work and services

During the pandemic, all the companies had to stop working from their offices. The only option to keep the work going was to accept the work from home and give access to employees to work remotely. Soon, working remotely became a norm. Many companies started giving work opportunities permanently from home. This helped the companies to cut the costs of the office place and gave new startups an opportunity to emerge, reducing the need to put in a lot of economic resources. Companies also opted to provide services more digitally.

Customer-centric approach

Due to the pandemic, many consumers were hit by the economic crisis, which made them less reluctant to make purchases. In order to make the purchases grow, many organisations and small-scale businesses made sure that the products and services are customer centric. They started delivering personalised goods and services, and customer’s choices became a priority for the businesses.

Strategies for enhancing resilience in internal trade

After the unavoidable circumstances hit, it was a major concern to build certain strategies which could withstand any such situation in the coming future. Many economists, business heads, researchers came together to propose certain strategies to improve the internal trade and make sure the internal trade is resilient to such crises. Certain key strategies include:

Robust digital infrastructure

With the increased popularity of digital methods of trading, it was important to build a robust infrastructure to continue working. Investments were made by the companies in digital essentials like internet connectivity, the hardware required, and digital payment systems to ensure the efficient working of the systems.

Supply chain diversification

To optimise the supply chains, companies started diversifying their suppliers and investing in applications which gave them a real-time image of how things are working. Diversifying the supply chains made sure that the supply of services and the material was not going to be disrupted, even if one means of supply somehow does not work. It was made sure that redundant supply chain options could mitigate disruptions during crises.

Data analytics and forecasting

Using the data of consumers from across the globe and implementing techniques like data mining and predictive modelling made the suppliers prepared for any of the tough situations. The predictive modelling algorithms for forecasting makes sure that no products are wasted and the services are in adequate amounts.

Agile business models

Agile business models are the models in which the work is divided into smaller sub-tasks. Once the first task is completed, it is discussed with the consumers and after seeing the market conditions and other factors and receiving feedback from the users, the next task starts. This not only saves time but also makes the product closer to the user’s preference. The overuse of material and wastage of money is also avoided using this model.

Resilience testing

The testing teams are set up to periodically check the systems of various businesses to check their resilience to various situations. This testing helps identify the vulnerabilities and loopholes that can be fixed further.

Government support

The government should introduce certain policies which are flexible and can be made use of during such pandemics to make sure that no harm is caused to the business and trading mechanisms. They should also provide support and assistance in case needed during tough circumstances.

Role of digitalisation and contactless transactions

The digital revolution and the introduction of contactless payment methods have emerged as a life saver in such situations. It is predicted that the digital revolution and payment gateways are resilient when situations like COVID-19 pandemic hit.

E-commerce growth

E-commerce has reached new heights during and post pandemic. E-commerce platforms made sure that the products and services are supplied to the consumers even during the pandemic. This made it popular among consumers. Since then, digital marketplaces have become vital for sales and distribution.

Contactless payments

The introduction of contactless payments has given users an edge in making payments in an efficient manner. Methods like mobile wallets and digital currencies make the transactions traceable and easy-to-do. They gained popularity due to the safety and ease they provide while transactions.

Supply chain visibility

Many digital tools and technology advancements, like the IoT, have given ways to provide real-time visibility into supply chains. This has helped the companies to monitor the supply chains, stay alert and fix any disruptions that occur. The responses to the disruptions have now become quicker.

Remote work and services

Digital platforms and internet connectivity have facilitated remote work facilities. People can even work while they are anywhere. This has made it resilient to the circumstances in which you cannot work from a particular place. With this facility, companies can continue their operations even when they cannot while ensuring safety.

Internal trade is the lifeblood of a nation’s economic development. We have tried to understand the multidimensionality of internal trade in this article. We discussed its definitions, categorisation, and the multi challenges faced by it. We also saw the important role played by the Ministry of Commerce to promote internal trade in India by policies, regulations and collaborations with industry associations. The post pandemic era unravelled the flaws in our system of Internal trade. It also showed us the resilient nature of internal trade and its ability to adapt to challenges. Internal trade is definitely not static, it is dynamic and ever-growing to new technology, market trends and consumer demands. The government, business houses, consumers, all be open to new technology and adapt to it to fully harness the full potential of Internal trade in the country. 

What is internal trade? How does it differ from international trade?

Internal trade is the buying and selling of goods and services within the boundaries of a nation. It differs from international trade as international trade involves exchange of goods or services between different countries or a group of countries.

What are the main terms used in trade?

The main terms used in Trade are:

Cash on delivery (COD) 

This is a type of transaction in which payment for goods or services is made at the time of delivery. It is generally used in e-commerce shopping. The transaction will be cancelled if the buyer is unable to pay when the goods or services are delivered.

Free on board or free on rail (FoB or FoR)

It refers to an agreement between a seller and a buyer wherein the seller promises to cover all costs up until delivery to a carrier (which could be a ship, railroad, truck, etc.).

Cost, insurance and freight (CFF) 

It is the price of the products which includes the cost of the goods as well as any insurance and freight charges that must be paid on the goods up to the destination port.

Errors and omissions excepted (E&OE)

It refers to that term which is used in trade documents to say that mistakes and things that have been forgotten should be taken into account.

What are the types of retailers?

The are two types of retailers on the basis of fixed place business-

  1. Itinerant retailers, such as peddlers and hawkers, market traders, street traders and cheap jacks.
  2. Fixed Shop retailers, such as General stores, speciality shops, second hand goods shops, departmental stores, chain stores.

What are the intermediaries in internal trade?

Intermediaries, also known as middleman, are usually independent and help facilitate the movement of goods and services from producer to end users. They connect buyers and sellers and perform various functions to streamline the trade process. They are not the manufacturer or wholesaler or retailer, but they help them in efficiently managing the trade process. Distributors, agents, and brokers are all examples of intermediaries.

How does the Ministry of Commerce promote internal trade?

The Ministry of Commerce promotes Internal trade by formulating trade policies, regulating the market, collaborating with trade associations and launching different schemes such as Make in India and Digital India with the government. It has also taken Internal Trade in its purview under the Department of Promotion of Industry and Internal Trade (DPIIT).

Who heads the Department of Promotion of Industry and Internal Trade (DPIIT)?

The Department of Promotion of Industry and Internal Trade (DPIIT) is headed by Shri Piyush Goyal as Minister, Smt. Anupriya Singh Patel and Shri Som Prakash as Minister of State, and Shri Rajesh Kumar Singh as Secretary.

What is the impact of technology in internal trade?

Technology, such as e-commerce have disrupted the traditional Internal trade model. It has forced the earlier Brick-and-Mortar type retail to transform themselves and keep up pace with the modern market. Also, Direct-to-Consumers (D2C) sales models have challenged the role of intermediaries, wholesalers and retailers.

What are the key challenges faced by internal traders?

Internal traders face a lot of challenges. Some of them include market discrepancies, complex regulations. changing consumer demands, rapidly evolving technologies and sustainability concerns.

What are the sustainability challenges faced by internal trade?

Sustainability challenges in internal trade include challenges of environmental sustainability such as reducing carbon emissions, improving waste management and product life extension. Other challenges are of social responsibility such as fair labour practices, community impact and ethical challenges such as ensuring supply chain transparency, sustainable sourcing.

What lessons have been learnt from COVID-19 Pandemic?

Both businesses and the government have appreciated the importance of digital transactions, online shopping, supply chain resilience and agile business models.

Why is internal trade considered as the lifeblood of a nation’s economic growth?

Internal trade plays a central role when it comes to a nation’s economic growth. It contributes in creating jobs, generating revenue, driving economic growth, meeting consumer demands etc. It contributes significantly to a nation’s GDP. It reduces the import dependency on other countries.

What role has digitalization played in post- pandemic Internal trade?

Digitalization has shifted our focus towards a cashless economy, contactless payments, supply chain visibility and remote working.

What can be done to enhance internal trade?

The adoption of modern technology is crucial for enhancing Internal trade. Technologies such as data analytic can help producers understand consumer demand and manufacture products accordingly. It can also help retailers to keep stock of products in demand. Technologies such as AI can help understand and predict market trends. It can help develop sustainable and eco-friendly material.  Blockchain can be used to create a safe payment environment.



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