Unit 4-

Study of
Domestic and
foreign Trade
Trade
+ it refers to the sale transfer or exchange of goods and
services for a certain price. Trade establishes a link
between producers and consumers through traders.
Traders are involved in actual operation of purchase and
sales of goods. They provide necessary support to
producers and maintain smooth flow of goods for
commerce.  traders Not only buy the Finish goods from
producers but also supply raw materials, spare parts
machinery and equipment to producers.
Classification of trade on geographical basis

+ 1. Internal trade or Home trade -

+ 2. External trade or Foreign trade
Internal trade

+ Internal trade or home trade refers to buying and

selling of goods and services within a country.
Classification of internal trade on scale of
operations basis

1. Wholesale Trade
2. Retail Trade
Wholesale trade

+ Wholesale trade refers to buying of goods in bulk

from manufacturers or their agents and selling them
to retailers and industrial users in relatively small
quantities. those who are engaged in wholesale trade
are called wholesalers.
Types of wholesalers
1. manufacturer wholesalers - manufacturer wholesalers are
those wholesalers who manufactures the goods as well as
sell the goods to retailers.
2. retailer wholesalers- Retailer wholesaler are those
wholesalers who sell goods not only to retailers but also to
ultimate consumers.
3. pure wholesalers- Pure wholesalers are those who buy the
goods in bulk from the manufacturers of goods and sell
the goods only to retailers in relatively small quantities.
Functions of wholesalers

1. Assembling goods
2. Arranging storage
3. Grading and packaging
4. Physical distribution
5. Risk bearing
6. Financing
7. Stimulation of demand
8. Breaking the bulk
Retail trade
Retail trade refers to buying of goods from wholesaler or
manufacturers and selling them directly to the ultimate
consumers. those who are engaged in retail trade are
called retailers.
functions of retailers
1. Assembling goods
2. Arranging storage
3. Grading and packaging
4. Physical distribution
5. Risk bearing
6. Financing
7. Sales promotion
8. Personal selling
9. Market information
External Trade/ Foreign Trade/
International Trade
+ External Trade refers to Buying and Selling of goods and
services between the nationals of different countries or trade
between agencies of the Government of different countries.
External Trade

+ Export- It involves the selling of goods and services to other

Countries.
+ Import- It involves the purchasing of goods and services from other
countries.
+ Entreport- It involves importing the goods from one or more
countries with the purpose of exporting them to some other country
or countries
Importance/ Advantages of Foreign
Trade
1. Leads to specialization
2. Facilitates Economic Development
3. Equalizes Prices
4. Facilitates the development of Cultural Relationship
5. Generate Employement Opportunity
6. Ensure Supply
7. Improves Standard Of Living
Difficulties in Foreign Trade

1. Difficulty in Securing Information

2. Difficulty in Anticipating Change in Demand and Supply
3. Risk of frequent price change
4. Credit risk
5. Risk of fluctuating Exchange rates
6. Subject to restrictions
7. Risk of loss or Damage to Cargo
8. Investment for long period
9. Verification on Importers Credir worthiness and Exporters Reliability.
Means of Export Promotion

1. Through Institutional Support

2. Through Financial Incentives
3. Through Fiscal Incentives
Through Institutional Support
1. EPC Export Promotion Councils
2. Commodity Boards
3. FIEO
4. IIFT
5. IIP
6. EIC
7. ICA
8. Chembar of Commerce and Industry
Through Institutional Support
9. Bureau of Indian Standard
10. Export Directorate of development Commissioner and small-scale
industries
11. Scope shipping std. committee
12. Textile committee
13. Marine product Export Development Authority
14. IIC
15. Freight Investigation Bureau
Through Financial Incentives

1. MDA (Marketing Development Assistance)

2. Spices Export Promotion Scheme
3. Air Freight Subsidy
4. New External Market assistance Scheme
5. Finance Assistance scheme
6. Financial Assistance for Marine Products
7. Market Access Initiative
8. Interest Subsidy
Through Fiscal Incentives

+ Duty Drawback in respect of Customs and Central Excise Duties

+ Income tax Exemptions and Deductions
+ Sales Tax Exemptions
+ Reimbursement of Central Sales Tax
Duty Drawback in respect of Customs and Central
Excise Duties

Under the duty drawback scheme the export products

get relief in respect of customs and excise duties paid
on raw materials and components used in their
production.
Income tax Exemptions and Deductions
the following exemptions and deductions at specified rates are available to
the exporters and other foreign exchange under the income tax act 1961. 
1. Deduction in respect of profit and gains from projects outside India.
2. Deduction in respect of export turnover.
3. Deduction in respect of earnings in convertible foreign exchange.
4. Deduction in respect of export of computer software.
5. 10 year tax holiday in respect of newly established industrial undertaking
in free trade zone, electronic hardware technology parks and software
technology Parks as well as social economic zones .
6. 10 year tax holiday in respect of newly established hundred percent
export-oriented undertaking.     
Sales tax exemptions

Sales tax exemptions by virtue of section 5 of the

Central Sales Tax Act, any dealer who is registered with
the sales tax authorities can claim the exemption from
sales tax in respect of his sale is made in the course of
export out of the territory of India.   
Methods of payment

1. Advance payment
2. Open account
3. Documentary bills
4. letter of credit
5. Direct remittance. 
Advance payment

Under this method exporter received the payment either

on signing of export contracts or any time before
shipment is made by means of bank draft mail
telegraphic transfer or international money order.
Open account

Under this method exporter receive the payment on

periodic settlement of account there exist risk in this
method because there are no intermediary that is bank
to protect interest of the exporter
Documentary bills method

The payment by means of bill of exchange is linked with the

transfer of shipping document there are two methods of
receiving payment.
1. Documents against acceptance- it is a method of receiving
payment from the importer whereby the documents are
released on acceptance of a bill of exchange
2. Documents against payment it is a method of receiving
payment from the importer where the documents are
released on payment of bill of exchange x
Documentary credit under letter of credit

Documentary credit is a method of receiving payment

from the importer where the importer arranges for a
bank to issue a letter of credit in favor of the exporter.
Direct remittance

Under this method the exporter sends both the goods

and documents to the importer and the importer send
the payment to the exporter by means of bank drafts,
mail/telegraphic transfer or international money order
this exist risk in this method because there are no
intermediary that is bank to protect interest of the
exporter.
EXIM bank

+ EXIM bank of India is a specialized financial institution

for promoting foreign trade of India. Established on 1
January 1982. The main objective of EXIM Bank is to
coordinate the working of institutions engaged in
financing of export and import.  
Thank You