Have you ever observed the various activities performed by a businessman while carrying
out the business operations? Look at the grocery shop of your locality. What does the
owner do? He arranges funds, buys goods from the main market, carries those goods
to his shop, stores those systematically and sells to the customers as per their demand.
While doing all these activities the owner or the businessman needs various help or
support from others. For example, he may take loan from bank, hire a tempo or truck
in carrying the goods and so on. Thus, to carry out any business activity successfully
various support services are required. Let us have an idea about those services and
their operations. In this lesson we shall learn about the basic aspects like the meaning,
importance and functioning of these support services.

OBJECTIVES

After seen this video, you will be able to:

• explain the concept of business support services;
• identify various types of services;
• explain the importance of banking;
• identify different types of banks and the functions of a commercial bank;
• explain the importance and types of insurance;
• describe the meaning, importance and modes of transportation;
• explain the concept of communication, its importance and various means used for
communicating;
• describe the meaning and importance of warehousing;

• identify the various types of warehouses; and
• explain the functions of warehouses.

BUSINESS SUPPORT SERVICES

As stated earlier, the business support services refer to those business activities that act
as auxiliaries to trade and facilitate smooth flow of goods from producer to consumer
and the functioning of business as such. These include banking, insurance, transportation,
warehousing and communication. Banking helps in providing finance and payment
facilities, insurance to provide a cover to all sorts of business risks, transportation to
facilitate physical movement of goods from one place to another, warehousing to provide
storage facilities at various places to meet seasonal variations in demand, and
communication for facilitating exchange of information and ideas between producers,
middlemen and consumers. Thus, effectively, these business services are essential for
smooth functioning of any business in any part of the world, and every person who is
engaged in business must be fully aware of their functioning and use. Let us now learn
about each one of these in detail.

BANKING

Bank is an institution that deals in money and credit. It accepts deposits from those
who have funds to spare and grants loans and advances to those who are in need of
funds for various purposes. Thus, banking refers to the various services provided by
banks, such as acceptance of deposits, grant of loans and advances, and other
supplementary services. Banking Regulation Act defines banking as “accepting, for the
purpose of lending or investment of deposits of money from the public repayable on
demand or/and withdrawable by cheque, draft or otherwise”. Thus, acceptance of
deposits and lending or investing the same are two essential functions of a bank who
act as an intermediary and deals with money belonging to the public. Of course, it
provides many other financial services as clarified later in this chapter.

2.2.1 Importance of Banking

(a) Capital Formation : Deposits accepted by banks are channelised as loans and
advances for industrial and trading activities to business organisations. Thus, banking
indirectly converts savings into investment leading to capital formation and
development of economy.
(b) Services to Business : Banking helps business through a variety of services
such as providing long-term and short-term finance, arranging remittance of money,
collection of cheques and bills etc., assisting in raising of capital by acting as
underwriters and merchant bankers and so on.
(c) Reduces Use of Currency : Banks enable depositors to make payment by
cheque, which is transferable by endorsement and delivery. Besides, travellers
can carry travellers’ cheques, credit cards etc. issued by banks instead of liquid
money. Thus, use of currency is considerably reduced.
(d) Mobilisation of Savings : Banks allow savings to be deposited in different types
of accounts such as Current Account, Savings Bank Account, Fixed Deposit
Account, etc. The facilities of withdrawal as and when desired, and payment of
interest on deposits encourage people to save money and put it in the banks.
(e) Benefits to Rural Economy : Rural branches of banks play a useful role in
mobilising savings in rural areas and provide loans to farmers and artisans at
concessional rates and on priority basis. This helps the rural economy in a big
way.
(f) Balanced Development of Economy : Banks identify areas that need special
assistance for industrial development and provide them the necessary help. Similarly
they also identify backward regions and help in their economic development by
providing them adequate funds at reasonable rates. Banks thus, help backward
areas in industry and balanced regional development.
(g) Development of Credit Policy : Credit policy is a pre-requisite for economic
development. The central bank of a country develops a proper monetary policy
by determining the bank rate and regulate the money supply in the larger interest
of the economy and the pace of its development.

2.2.2 Types of Banks

There are various types of banks operate in our country to meet the diverse financial
needs of customers. One may need money for short period of time, whereas others
need it for longer period. A businessman may require funds for trading purposes whereas
another may need it for setting up of a big manufacturing unit. Sometimes government
also needs money and credit. So to meet all these needs we have different types of
banking institutions, which can be categorised as per their functions.

(a) Commercial bank (b) Co-operative bank
(c) Development bank (d) Specialised bank
(e) Central bank

Now let us have an idea about all these banks.

(a) Commercial Bank : Commercial Banks are banking institutions that accept
deposits from the public and grant short-term loans and advances to their customers.
Now-a-day, the commercial banks have also started giving medium-term and
long-term loans to trade and industry. Commercial banks may be (i) public sector
banks, (ii) private sector banks, or (iii) foreign banks.
(i) Public Sector Banks : In public sector commercial banks, the majority
stake is held by the Government of India or Reserve Bank of India. Examples
of such banks are: State Bank of India, Bank of Baroda, Syndicate Bank,
Dena Bank, etc.
(ii) Private Sectors Banks : In case of private sector banks, the majority of
share capital of the bank is held by private individuals. These banks are
registered as public limited companies. Example of such banks are: Jammu
and Kashmir Bank Ltd., Lord Krishna Bank Ltd., ICICI Bank Ltd. Kotak
Bank, HDFC Bank Ltd. etc.
(iii) Foreign Banks : These banks are incorporated in foreign countries and
operate their branches in our country. Example of such banks are: Hong
Kong and Shanghai Banking Corporation (HSBC), Citibank, American
Express Bank, Standard & Chartered Bank, ABN-AMRO Bank, etc.

(b) Co-operative Bank : When a co-operative society engages itself in banking
business it is called a Co-operative Bank. . The co-operative banks generally
grant loans for productive purposes as well as for other purposes. The rate of
interest charged is usually low. These banks are also subject to control and
inspection by Reserve Bank of India. There are three types of co-operative banks
operating in our country. These are: (i) Primary Credit Societies (ii) Central Cooperative Banks, and (iii) State Co-operative Banks.
(c) Development Bank : Development banks are the financial institutions which
provide medium and long-term loans to industry. Rapid development of industries
in India after independence requiring huge financial investment and promotional
efforts led to the establishment of these institutions. Development banks assist the
promotion, expansion and modernisation of industries. Besides providing medium
and long-term finance, these banks also subscribe to the capital issues of industrial
undertakings. They also provide technical advice and assistance, if needed. Industrial

Finance Corporation of India (IFCI) and State Financial Corporations (SFCs)
are examples of development banks in India.

(d) Specialised Bank : There are some banks which engage themselves in some
specific area or activity and are thus, called specialised banks. Export Import
Bank of India (EXIM Bank), Small Industries Development Bank of India (SIDBI),
National Bank for Agricultural and Rural Development (NABARD) are examples
of such banks.

(e) Central Bank : In every country a bank which is entrusted with the responsibility
of guiding and regulating the banking system is known as the Central Bank. Such
bank is an apex bank and acts as the highest financial authority. In India, the
central banking authority is the Reserve Bank of India. It does not deal directly
with the members of public. It acts as bankers’ bank, maintains deposit accounts
of all other banks and advances money to banks as and when needed. It regulates
the volume of currency and credit, and has the powers of control and supervision
over all banking institutions.

The Reserve Bank of India also acts as government banker and maintains the
record of government receipts, payments and borrowings under various heads. It
advises the government on monetary and credit policy, and plays an important
role in fixation of the rate of interest on bank deposits and bank loans. It is the
custodian of currency reserves consisting of foreign exchange, gold and other
securities. Another important function of the Reserve Bank of India is the issue of
currency notes and regulation of the money supply.

2.2.3 Functions of Commercial Bank

The functions of a commercial bank are divided into two categories viz. (a) primary
functions; and (b) secondary functions. Let us understand the nature and variety of
those functions more clearly.

(a) Primary Functions

The primary functions of a commercial bank include: (i) accepting deposits; and (ii)
lending money

(i) Accepting Deposits : The most important activity of a commercial bank is to
accept deposits from the public. People who have surplus income and savings
find it convenient to deposit it with banks. For the convenience of the customers,
banks provide different types of deposit accounts like Fixed Deposit Account,
Recurring Deposit account, Current Account, Savings Bank Account, etc. with
varying rates of interest. Public is also assured of the safety of funds deposited
with the bank.

(ii) Lending Money : The second important function of a commercial bank is lending
of money to the public as well as to the business houses. It takes the form of loans
and advances to the customers at the prescribed rates of interest. Loans are granted
for a specific period. The borrower may be given the entire amount in lump sum
or in instalments. Loans and advances are generally granted against the security
of certain assets. The credit facility granted by the banks is usually for a shorter
period of time which takes the form of cash credit, overdraft or discounting of
bills. As stated earlier, banks also provide loans for a medium term or a long
period.

(b) Secondary Functions

Besides the two primary functions outlined above, the commercial banks also render a
number of ancillary services. These services supplement the main activities of the banks
and may be termed as secondary functions of commercial banks. They are essentially
non-banking in nature and broadly fall under two categories: (i) Agency services; and
(ii) General utility services.

(i) Agency Services: Agency services refer to those services which are provided
by commercial banks as agents of their customers. These include:

• Collection and payment of cheques and bills;
• Collection of dividends, interest and rent, etc.;
• Purchase and sale of securities (shares, debentures, bonds etc.);
• Payment of rent, interest, insurance premium, subscriptions etc.;
• Acting as a trustee or executor; and
• Acting as agents or correspondents on behalf of customers for other banks
and financial institutions at home and abroad.

(ii) General Utility Services: General utility services are those services which are
rendered by commercial banks not only to the customers but also to the general
public. These are available to the public on payment of a fee or charge. These
include:

• Issue of bank drafts, pay order (banker’s cheque), travellers’ cheques;
• Issue of letters of credit;
• Safe-keeping of valuables in safe deposit locker;
• ATM card, debit card and credit card facility;
• Internet banking and phone banking;

• Sale of prospectus and application forms of various competitive examinations;
• Accepting telephone bills, electricity bills;
• Underwriting loans floated by government and public bodies;
• Supplying trade information and statistical data useful to customers; and
• Acting as a referee regarding the financial status of customers.

2.2.4 Types of Bank Accounts

1. Saving Deposit Account : These deposits are aimed to encourage habit of savings
   among people. Saving Account can be opened with a small amount, say Rs. 100.
   Deposits can be made any number of times in this account. However, there are
   restrictions on withdrawals. Interest is allowed on minimum daily balance. Rate of
   interest is allowed on these deposits is lower than that on FDs. A passbook is
   issued to the account holder which indicates the amount deposited and withdrawals
   made as well as the balance in the account holder’s account.
2. Current Deposit Account : Current Deposit Account provides facilities to
   industrialists and businessmen to deposit or withdraw the money as and when
   they need. Money can be withdrawn at anytime by means of cheque. There is no
   restriction on making deposits in such account. No interest is allowed on this
   account balance. However, overdraft facilities are provided on current accounts.
   Current deposits are also called ‘Demand Deposits’ as they are payable on demand
   by the depositors. A passbook is also issued to the account holder.
3. Fixed Deposit Account : A fixed amount is deposited for a specified time period
   in case of a Fixed Deposit (FD) Account. e.g. one year, three years, five years
   etc. After the expiry of the fixed period, the deposit is repayable with interest. A
   higher rate of interest is offered on fixed deposits. The rate of interest varies with
   the period of deposit. Fixed Deposits are also called ‘time Deposits’ or ‘Longterm Deposits’. Banks do not provide passbook and cheque book facilities on
   fixed deposit accounts. The rate of interest in fixed deposit is more than the rate of
   interest in saving account and depends on the duration for which deposits have
   been made.
4. Recurring Deposit Account : In Recurring Deposit Account, the account holder
   is required to deposit a specified sum of money every month for specified time
   period e.g., five years, seven years, ten years etc. At the end of the period, the
   accumulated amount together with interest earned is paid to the account holder.
   Withdrawals before maturity not allowed. In this type of account, cheque book
   facility is not available to account holders. Recurring deposits also called
   ‘cummulative time deposits’. A passbook issued to account holder showing the

deposit made every month. Recurring deposit account used by small savers. Rate
of interest offered by bank on recurring accounts is more than the rate of interest
on saving account.

2.2.5 Banking Services

Commercial banks offer variety of services in addition to accepting deposits and lending
money. Such services are as under :

1. Issue of Bank Draft : Bank draft is a convenient and safe mode of remitting
   money from one place to another. It is an order to pay a certain sum of money to
   the payee or order by the issuing bank to it’s another branch. For remitting money
   the following procedure is followed.
   a) Person who wants to remit money fills in a form and pays the amount of draft
   along with the prescribed commission to the bank.
   b) Bank gives him the bank draft.
   c) He then sends the bank draft to the payee by post or courier service.
   d) Payee deposits it in his bank.
   e) Bank collects the payment form the issuing bank and credits the same to the
   payee’s account.
   Features of Bank Draft
   a) There is no risk of dishonour of a bank draft.
   b) The issuing bank charges some commission for bank draft.
   c) Bank draft is a safe and convenient method to transfer money from one
   place to another.
   d) A bank draft is valid for three months from the date of its issue.
   e) It contains an order to pay a certain sum to the payee or his order.

2. Banker’s Cheque (Pay Order) : A pay order is like a bank draft, but it is
payable at the issuing branch. Therefore it is used to send the money within the
city. It is also called as a local bank draft. The commission charged for a pay
order is lesser than that charged for a bank draft. Like a bank draft a pay order is
also valid for three months from the date of its issue.

3. Real Time Gross Settlement (RTGS) : RTGS is a funds transfer system. In
this system, transfer of funds take place from one bank to another on a ‘Real
Time’ and ‘Gross’ basis. i.e., there is no waiting period in payment. The settlement
of transaction is done as soon as it is processed. ‘Gross’ settlement means the

transactions is made on one to one basis without bunching with any other
transaction. The receiving bank must credit the customer’s account within 2 hours
of receiving the funds transfer message. The minimum amount in RTGS transaction
is Rs. 50,000. There is no upper ceiling for a RTGS transaction. Fees charged for
RTGS transactions vary from bank to bank.

4. National Electronic Funds Transfer (NEFT) : NEFT is a fund transfer system.
   In NEFT an individual, firm or company can electronically transfer funds from any
   bank branch to another individual, firm or company having an account with any
   other bank in the country. The funds transfer takes place at a particular period of
   time. During week days NEFT transactions take place 6 times a day (9.30a.m,
   10.30 a.m., 12.00 noon, 1.00 p.m., 3.00 p.m., and 4.00 p.m.) on Saturday NEFT
   transactions take place 3 times a day (9.30 a.m., 10.30 a.m., and 12.00 noon)
   Features of NEFT
   a) An individual, firm or company can make use of NEFT even without having
   a bank account by depositing cash at a NEFT enabled bank branch.
   b) In order to receive funds through the NEFT system, an individual firms or
   company must have an account with a NEFT enabled bank branch.
   c) NEFT transaction take place in batches.
   d) If one does not have a bank account, the maximum amount that can be
   transferred through NEFT system is Rs. 49,999.
   e) There is no minimum or maximum amount that can be transferred through
   NEFT when one has bank account.
   f) NEFT is not used to receive foreign remittances.
   g) The sender of funds must pay charges for NEFT. The amount of charges
   vary according to the amount sent.
   h) The receiver of funds has not to pay any charges.

 

4. Bank Overdraft : Current account holder is allowed to draw by cheque more
   than the amount to his credit up to a specified limit. This facility is provided against
   the security of some assets. A higher rate of interest is charged on bank overdrafts.
   Extra amount withdrawn from the current account must be deposited in the account
   within the prescribed period.
5. Cash Credit : Under cash credit system, person, firm or company can borrow
   money from the bank. Money can be borrowed up to a specified limit. The
   borrower withdraws money as and when required. Interest is charged on the
   amount withdrawn by the borrower. Cash credit limit is decided by the bank on
   the basis of the borrower’s assets and personal reputation.

7. SMS Alerts : It is a type of e-banking facility. To avail this service, the customer
   must get his/her mobile number registered with the bank. The Bank records the
   mobile number of customer in computer system in the profile of customer.
   Whenever a transaction takes place in the customer’s account, there is a SMS
   alert on his mobile phone. SMS alerts give information of the up to date balance in
   his account without visiting the bank.

2.2.6 E-Banking

Internet banking/Electronic banking means performing banking transactions with the
help of computer systems. Any user with a Personal Computer (PC) and a browser
can get connected to the banks website to perform any banking functions. Any user
can avail of banking services with the help of internet. e.g. a customer withdraws money
through an ATM (Automated Teller Machine)

Benefits

i. Customers get 24 hours and 365 days services.
ii. Unlimited access to the bank increases customer satisfaction.
iii. E-banking facilitates customers to do banking transactions while travelling.
iv. E-banking lowers the transaction costs.
v. E-banking empowers customers.
vi. E-banking provides competitive advantage to the bank.
Range of services offered by e-banking are :
i. Electronic Funds Transfer (EFT),
ii. Automated Teller Machines (ATM),
iii. Point of Sales (POS)
iv. Electronic Data Interchange (EDI) and
v. Digital Cash

2.2.7 Postal and Telecom Services

Parcel Post

Parcels of specified size and weight can be sent through post. Postal charges for parcels
vary according to the weight of the parcel, distance etc. Using parcel post, articles are
sent across the country as well as outside the country.

Courier

Courier services are offered by private sector enterprises. Letters, products in small
quantity etc. are sent from one place to another by availing courier service.

Saving Services

1. Recurring Deposit (RD) in Post Office : In this scheme a certain amount of
   money is deposited every month for a specified time period. (e.g., 5 yrs. 10 yrs.
   etc). Total amount deposited together with interest is repaid on maturity. The main
   objective of RD is to accumulate small savings. Cheque facility is not provided.
   But passbook is issued to the account holder. The amount becomes payable on
   the maturity, however loan may be provided against the security of the recurring
   deposit account.
2. National Saving Certificates (NSC) : NSC is taken for any amount of Rs. 100
   and more. The term is for 5 years or 10 years. At the end of period, the amount of
   NSC together with interest is paid to the deposit holder. Tax benefit is available
   for funds invested in NSC, subject to an overall limit of Rs. 1,00,000.
3. Public Provident Fund (PPF) : An adult can open a PPF account by depositing
   every year an amount in between Rs. 500 – Rs. 1 lakh in some specified banks or
   in a post office. The term of a PPF account is 15 years. Which can be extended
   for a further period of 15 years. Funds invested in PPF are eligible for tax benefit
   under Sec. 80C of the Income Tax Act, 1961. A passbook showing the deposit
   details is issued to the account holder.
4. Monthly Income Scheme (MIS) : An Indian can open a Monthly Income
   Scheme in single name or jointly with another person. Deposit is made one time
   up to Rs. 4.5 lakhs (incase of single name account) and Rs. 9 lakhs (in case of
   joint account). Interest is paid monthly to the account holder. At the end of five
   years, the deposit amount paid to the account holders. A passbook is issued to
   the account holder. Premature withdrawals are not allowed.

INTEXT QUESTIONS 2.2

1. Name the bank which is termed as bankers’ bank.

 

1. Categorise the following under agency and general utility services of commercial
   banks.
   (a) Purchase and sale of securities.
   (b) Issue of letter of credit.
   (c) Issue of bank drafts.
   (d) Internet Banking
   (e) Collection of dividends

4. Choose the best alternate answer out of given four alternatives in the following
   questions :

i. Overdraft facility is allowed to which type of account holder
a) Saving Account b) Current Account
c) Recurring Account d) Fixed Deposit Account

ii. Anil transferred funds electronically from his account in SBI, Delhi to Deepak
who has account in Punjab National Bank, Bangalore. Which type of banking
service was used by Anil.

a) Pay order b) Bank overdraft
c) National Electronic Fund Transfer d) Issue of bank draft

 

iii. Sandeep inserts his ATM card in Machine and by using his PIN, he received
his transaction statement. Which type of banking service Sandeep used?

a) Traditional banking b) E-banking
c) Both (a) and (b) d) None of the above

iv. Which deposit account requires deposit of money at regular periodical intervals

a) Savings deposit account b) Recurring deposit account
c) Current deposit account d) None of the above

INSURANCE

You know that every business faces a variety of risks. For example, there may be
injury to employees in job related accidents, goods may be lost in transit; there may be

fire in the godown, and so on. In all these situations the entire loss is to be borne by the
businessman or the owner. But, now-a-days, the risk of loss or damage is not entirely
borne by the owner. The insurance provides protection against losses form such risk of
the business for a nominal charge called premium. In other words, it helps the business
in recovering losses which may arise due to various happening in the course of business,
partly or fully from the insurance company. Before discussing in detail about insurance,
let us first have a brief idea about the ‘business risks’, their nature and insurability.

Risk is the possibility of loss or damage due to factors over which we have little or no
control. Similarly business risk refers to the possibility of loss or damage on the happening
of certain events which are beyond one’s control. For example, while goods are
transported from one place to another, there may be an accident causing damage or
loss of goods. Similarly, there is a possibility that the trains may be derailed, bridge
may collapse, aeroplane may crash due to an engine trouble, truck may be looted on its
way to another city, or damage may be caused to goods sent by ship at the time of
loading or unloading at sea ports. Again, a business may suffer loss or its profit may fall
due to reduction in demand of its product because of change in the taste and fashion of
the customers. The innovations of science and technology also bring about changes in
the demand of a particular product in the market as happened in the case of demand
for fixed line telephone which has declined due to the advent of mobile phones. The
change in government policy, tax rates, interest rate etc. may also affect the earnings of
a business. These are also the types of risks a business might face during its life-time.

Now the question arises as to whether all these risks are covered by insurance. The
answer is ‘no’. All types of business risks are not covered by insurance. Some of the
risks discussed above are insurable while others are non-insurable. To be specific, the
risk of loss due to fire, theft, earthquake, flood, etc. can be insured on payment of a
nominal amount. These are called insurable risks. But, risk of loss on account of decline
in demand of a product due to change in fashions, introduction of new products in the
market or change of policy of the government cannot be insured. These are called noninsurable risks. The non-insurable risks are to be fully borne by the businessman.

2.3.1 Meaning of Insurance

The term ‘Insurance’ refers to a contract between two parties, one known as insured
and the other insurer, whereby the insurer in exchange of a fixed amount of money
agrees to compensate the insured against risks of loss or damage caused by happening
of certain events. The document containing the contract is known as ‘Insurance Policy’.
The person whose risk is insured is called ‘Insured’ or ‘Assured’ and the person or the
company which insures is known as ‘Insurer’,or ‘Assurer’. The consideration in return
for which the insurer agrees to compensate the insured is known as ‘Premium’.

Thus, insurance can be defined as ‘a contract between the insurer and insured whereby
the insurer undertakes to pay the insured a fixed amount, in exchange for a fixed sum of

money (premium), on the happening of a certain event (like attaining a certain age or on
death), or pay the amount of actual loss when it takes place due to the risk insured.

2.3.2 Importance of Insurance

(a) Protection Against Risk : Insurance provides protection against various risks
involved in business. The protection is in the form of a provision to compensate
for the loss suffered by the insured.
(b) Pooling of Risk : Insurance helps in sharing of risk. In practice, a large number
of people seek insurance by paying the premium which results in the formation of
insurance fund. This fund is used for compensating a few among them who may
suffer a loss. Thus, in effect the loss is spread over a large number of people.
(c) Helps in Securing Loans : Banks and financial institutions usually insist on the
insurance of goods and properties before loans can be sanctioned on their security.
So insurance makes it convenient to secure loans and advances from the financial
institutions.
(d) Protection Against Liabilities under various Labour Laws : Insurance gives
protection to businessmen in the event of compensation payable to employees for
accidents leading to fatal injury, partial injury, disablement, as well as sickness and
maternity.
(e) Contribute to Economic Development : Funds with the insurance companies
are invested in various types of securities and projects, which contribute to
economic development of the country.
(f) Generation of Employment : Insurance companies provide employment to a
large number of people on regular basis. A number of people earn their livelihood
working as insurance agents.

(g) Social Security : Life insurance provides security against risks of old age and
premature death of people. Besides, social security is provided to workers through
the Employees State Insurance scheme whereby accidental risks are covered.

2.3.3 Types of Insurance

Based on the subject matter of insurance or the nature of risk covered insurance can be
broadly classified as under:
(a) Life Insurance
(b) Fire Insurance
(c) Marine Insurance
(d) Other types of Insurance

Let us discuss in brief about all these types of insurance.

(a) Life Insurance

As a human being we are exposed to different types of risk. A person may face an
untimely death on account of an accident or some illness. In such a situation, the family
of the deceased faces financial hardship. Similarly, on attaining old age one may not
have enough money to manage a comfortable living. There is still another situation
when one may need a large sum of money such as marriage of a son or daughter, higher
professional education, etc. Life insurance is a contract that protects you against such
types of situation. It is a contract whereby the insurer undertakes to pay a certain sum
of money either on the death of the insured or on the expiry of a specified period of
time in consideration of a certain amount (premium) paid by the insured either in lump
sum or in installments. Since the risk insured is certain to happen and the sum assured
is bound to be paid sooner or later, the contract of life insurance is also referred to as
life assurance.

Life insurance policy was introduced as a protection against the uncertainty of life. But
gradually its scope has been extended to other areas like health insurance, disability
insurance, pension plan, etc. There are two basic types of life insurance policies (a)
Whole-life policy, and (b) Endowment Policy. In case of whole life policy the premium
is payable regularly throughout the life of the insured or for a fixed period. The sum
assured becomes payable to the heirs of the insured after his death. Such a policy is
taken up by a person who wishes to provide financial support to his/her dependents
after the death. An endowment policy, on the other hand, runs for a limited period or
upto a certain age of the insured, and the sum assured becomes due for payment at the
end of the specified period or on the death of the insured if it occurs earlier. This is the
most common form of life insurance policy taken up by the people.

In addition to the types of policies discussed above, the insurance companies offer
many other types of policies to attract the customers. Let us have a brief idea about
some of these policies.

(i) Joint Life Policy: Under this policy, the lives of two or more persons are insured
jointly. The sum assured becomes payable on the death of any one, to the survivor.
Usually, this policy is taken up by husband and wife jointly or by two partners of
the firm.
(ii) Money Back Policy: This scheme provides periodic payment to the policyholder
unlike ordinary endowment insurance plans where the survival benefits are payable
only at the maturity of the policy. For example, in case of a 20-year Money-Back
policy, 20% of the sum assured becomes payable each after 5, 10, 15 years, and
the balance 40% plus the bonus become payable at the 20th year.

(iii) Pension Plan: Under this plan the sum assured is payable to the policyholder on
his survival beyond the term of the policy. The sum assured or policy money
becomes payable in monthly, quarterly, half yearly or annual installments. This is
useful for those who prefer regular income after a certain age.
(iv) Unit Plans: These plans offer twin benefits of investment and insurance cover.
The premium paid by the policyholder is applied to purchase the shares and
debentures of different companies. The maturity amount is largely depend upon
the market value of the investment.
(v) Group Insurance Scheme: Group Insurance schemes are meant to provide life
insurance protection to the group of people at a low cost. These schemes are
suitable for group of employees of any business house or any office.

(b) Fire Insurance

Fire insurance is a contract whereby the insurer, in consideration of premium, undertakes
to compensate the insured for the loss or damage suffered due to fire. The premium is
payable in single installment. The fire insurance contracts are generally taken up for one
year. It automatically comes to an end after the expiry of one year. However, one can
renew the policy every year by paying the premium on time.

The claim for loss by fire is payable subject to two conditions, viz; (a) there must have
been actual fire; and (b) fire must have been accidental, not intentional; the cause of fire
being immaterial. The fire insurance contract is a contract of indemnity, that is, the
insured cannot claim anything more than the value of property lost or damaged by fire
or the amount of policy, whichever is lower. It may be noted that loss or damage by
fire also includes the loss/damage caused by efforts to extinguish the fire with a view to
minimise the loss.

(c) Marine Insurance

Marine insurance is an agreement by which the insurance company agrees to indemnify
the owner of a ship or cargo against risks which are incidental to marine adventures.
During an ocean journey, a ship is exposed to a variety of risks such as collision with
other ship, collision of ship with hidden rocks, fire, storm, and so on. In all these situations,
the entire loss is grouped into three categories: (i) loss to the ship; (ii) loss to the cargo;
and (iii) loss of freight. Marine insurance that covers the risk of loss of cargo is known
as Cargo Insurance. And when the owner of a ship is insured against loss on account
of perils of the sea, it is known as Ship or Hull insurance. Further, the freight is usually
payable by the owner of cargo on its safe delivery at the port of destination. So, the
shipping company may also seek insurance of the risk of loss of freight. Such a marine
insurance is known as freight insurance.

(d) Other types of Insurance

Apart from life, fire and marine insurance, general insurance companies insure a variety
of other risks through various policies. Some of these risks and the different policies
are outlined below.

i) Motor Vehicles Insurance: Insurance of passenger cars, vans, commercial
vehicles, motor cycles, scooters, etc., covers the risks of damage of the vehicle
by accident, loss by theft, and so also the liability arising out of injury to, or death
of a third party involved in the accident. Infact, vehicle insurance in respect of
third party is compulsory.
ii) Health Insurance: It provides protection against the medical expenses incurred
on treatment of illness or injury suffered by the policyholder. It is also termed as
medi-claim insurance, and is one of the most popular type of insurance now-adays.
iii) Crop Insurance: It protects the farmers from the loss suffered due to crop failure
in the event of drought or flood.
iv) Cash Insurance: It protects the banks and other business establishment against
loss of money in transit.
v) Cattle Insurance: It covers the risk of loss due to the death of a cow, buffalo,
heifer, bull, etc. caused by accident, diseases etc.
vi) Rajeswari Mahila Kalyan Bima Yojana: It provides relief to the family members
of the insured women in case of her death or disablement.
vii) Amartya Siksha Yojana Insurance Policy: This policy is meant for the education
of dependant children. In case the insured parents sustain any bodily injury which
causes death or permanent disablement, the insurer shall provide for education of
the dependent children of the insured.
viii) Burglary Insurance: Under this insurance, the insurance company undertakes
to indemnify the insured against losses from burglary i.e., loss of moveable goods
by robbery, theft etc.
ix) Fidelity Guarantee Insurance: As a protection against the risk of loss caused
by embezzlement or defalcation of cash or misappropriation of goods by employees,
the businessmen may seek insurance covering the risks of loss on account of fraud
and dishonesty on the part of the employees handling cash or in charge of stores.
This is called fidelity guarantee insurance.

INTEXT QUESTIONS 2.3

Mention the different categories of marine insurance.

2. Identify the insurance policies in the following cases.
   a) Policy taken up by husband and wife jointly.
   b) Periodic payment to the policyholder before the maturity of the policy.
   c) Protection from loss due to crop failure.
   d) Policy that takes care of the expenditure on education of the dependent
   children of the policyholder.
   e) Protection against misappropriation of goods by employees.

2.3.4 Principles of Insurance

The validity of an insurance contract rests upon certain well established principles that
apply to various types of insurance. These are briefly discussed hereunder.

(a) Principle of Utmost Good Faith: Insurance contracts are the contracts of mutual
trust and confidence. Both parties to the contract i.e., the insurer and the insured,
must disclose all relevant information relating to the subject matter of insurance. In
case of life insurance, for example, the proposer must honestly disclose all
information relating to his/her health, habits, personal history, family history etc. In
case of any concealment about the material facts, the contract will not be valid. It
is so because the risk can be evaluated only on the basis of these facts relating to
subject matter of insurance.

(b) Principle of Insurable Interest: According to this principle, the insured must
have insurable interest in the subject matter of the insurance. Insurable interest
means financial or pecuniary interest in the subject matter of insurance. A person
has insurable interest in the property or life insured if he stands to gain from its
existence or loose from its damage or destruction. For example, a man has insurable
interest in his own life and that of his wife, and similarly the wife has insurable
interest in her husband’s life. As for the property, normally it is the owner who has
insurable interest in his/her property. But, when he/she (the owner) has taken loan
from a housing finance company to build his/her house, the housing finance company
also has insurable interest in the house and it can seek its insurance. It may be
noted that in case of life insurance, the insurable interest must be present at the
time of taking the policy, in case of marine insurance insurable interest must exist
at the time of loss or damage to the property, and in case of fire insurance, it must
exist both at the time of taking the policy as well as at the time of loss or damage
to the property.

(c) Principle of Indemnity: The word indemnity means compensating somebody
for the actual loss suffered by him; or restore someone to the same position that
he/she was in before the insured event took place. This principle is applicable to
the fire and marine and general insurance. It is not applicable to life insurance
because the loss of life cannot be restored.

The principle of indemnity implies that the insured is not allowed to make any
profit from the insurance contract on the happening of the event that is insured
against. Compensation is paid on the basis of amount of actual loss or the sum
insured, which ever is less. Let us understand with the help of an example. A
person insures his house against fire for Rs. 20 lakh. The fire takes place and he
has to spend Rs. 5 lakh to repair the damage so caused. He can claim only Rs. 5
lakh from insurer and not the sum assured.

(d) Principle of Contribution: The same subject matter may be insured with more
than one insurer. In such a case, the insurance claim to be paid to the insured must
be shared or contributed by all insurers in proportion to the amount of sum assured
by each one of them. If one insurer has paid the full compensation to the insured,
he has the right to ask other insurers to share the loss proportionately. It may be
noted that in case of multiple insurance, the insured can claim the loss from any of
the insurers subject to the condition that the insured can not recover more than the
amount of actual loss from all taken together.

(e) Principle of Subrogation: According to this principle, once the claim of the
insured has been settled, the ownership right of the subject matter of insurance
passes on to the insurer. In other words, if the damaged property has any value,
such property can not the allowed to remain with the insured because otherwise
the insured will realise more than the actual loss which goes against the principle of
indemnity. Hence, when goods worth Rs. 1,00,000 are damaged due to accident
and the insurance company pays the full compensation to the insured, the insurance
company takes the possession of that damaged property and is entitled to dispose
off that property.

(f) Principle of Mitigation: In case of a mishap the insured must take all possible
steps to reduce or mitigate the loss or damage to the subject matter of insurance.
This principle ensures that the insured does not become negligent about the safety
of the subject matter after taking an insurance policy. The insured is expected to
act in a manner as if the subject matter has not been insured. If appropriate steps
are not taken to save the assets, then the insured may not get the full compensation
from the insurance company. For example, if a house is insured against fire and
the fire takes place, the owner must take all possible steps to extinguish the fire
and minimise the loss. Similarly, when a house is insured against theft, he must
take all precautions and steps to prevent theft.

(g) Principle of Causa-proxima (nearest cause): According to this principle, the
insured can claim compensation only if the loss is caused by the event insured
against. In other words, unless the event insured is nearest cause (not a remote
cause) for the loss occurred, the insured can not claim the loss from the insurance
company. For example a ship carrying orange was insured against losses arising
from accident. The ship reached the port safely and there was a delay in unloading
the oranges from the ship. As a result, the oranges got spoilt. The insurer did not
pay any compensation for the loss because the proximate cause of loss was delay
in unloading and not an accident during the voyage.

INTEXT QUESTIONS 2.4

1. What is meant by ‘Insurable interest’?

2. Name the principle of insurance violated in the following cases.

(a) ‘A’ does not own the building but is trying to get it insured as a party to the
insurance policy.
(b) ‘A’ enters into life insurance contract with LIC of India. ‘A’ was ailing with
heart decease but he did not reveal this at the time of entering the contract.
(c) ‘B’ enters into insurance contract with two companies ‘C’ and ‘D’. The
subject matter is a building worth Rs. 5 lakh. The building caught fire and
properties worth Rs. 3 lakhs were damaged. ‘C’ paid the entire claim and
asked ‘D’ to share the claim. ‘D’ denies.
(d) Goods worth Rs. 50,000 are damaged and the insurance company pays the
claim to ‘Z’ for the loss. ‘Z’ not only took the compensation for loss but also
claims the damaged goods.
(e) ‘P’ takes an insurance policy for Rs. 1 lakh with ‘Q’ company. The goods of
‘P’ are damaged due to fire the loss incurred is Rs. 25,000. ‘Q’ shall restore
the actual loss but ‘P’ claims full amount of the policy.

2.4 TRANSPORTATION

You are fully aware that the goods produced at one place may be used or consumed at
various places as the markets for goods now-a-days are spread over length and breadth
of the country and even extend to countries across the border. Hence the goods have
to be carried from place of production to the place of consumption or use. The process
of carrying goods and passengers from one place to another is termed as ‘transportation’
and the mode used there for are roadways, railways, airways and/or water ways. In
fact, transportation facilitates trading activities to create place utility to goods by removing
the barriers of distance (hindrance of place) between production and consumption.

2.4.1 Importance of Transportation

(a) Transport plays a very important role in distribution of goods both within a country
and across the borders.
(b) Transport helps in bringing about stable and uniform prices in different markets as
traders are able to adjust the supply of goods at different places according to the
changing demand.
(c) Consumers have the benefit of getting goods at their door step and have a wider
choice of goods at competitive prices.
(d) It ensures continuous supply of raw materials to the industry.
(e) It contributes to growth of large scale industries by facilitating the inflow of materials
and outflow of finished goods.
(f) International competition is encouraged with the improved transport system. This
makes global markets accessible to sellers and buyers of different countries.

2.4.2 Modes of Transport

While travelling from one place to another we use a car, a bus or a train. People also
use boat, ship, aircraft for their movement. These are all various means through which
we move from place to place. All these means of transport need the support of a
particular medium or mode through which it will travel. For example, a truck needs the
support of road, an aeroplane needs the support of air and a ship needs water to travel.
So the modes of transport can be classified as (a) road transport, (b) rail transport, (c)
water transport, and (d) air transport. Let us have a brief idea about these modes of
transport.

(a) Road Transport : Transport by road is undertaken through animals (horses,
camels, donkeys), vehicles drawn by animals (bullock-carts), and by Motor
Vehicles (Vans, trucks, etc.). Use of animals and vehicles drawn by animals have
limited use only in rural areas. Vans are limited to local transports within the city.
Most goods traffic moves through trucks which are considered convenient,
economical and safe.

(b) Rail Transport : Rail transport refers to movement of passengers and goods by
trains which are on railway tracks laid for the purpose. In terms of carrying capacity
over long distances rails transport is economical and safe. In India, railways are
owned by government of India and most commonly used mode of goods transport

(c) Water Transport : Water transport refers to movement of goods and passengers
on waterways by using various means like boats, steamers, launches, ships, etc.
This movement may takes place inside the country or from one country to another.

Movement of goods through inland waterways in India is highly limited because of
unavailability of inland water ways and limited facilities. Transportation by sea and
ocean is quite common in coastal areas and for international trade. It is relatively
more economical for bulky goods to be carried over long distance.

(d) Air Transport : Movement of goods and passengers by using aircrafts is termed
as air transport. It is the speediest mode of transport and is mostly used for carrying
passengers. As for goods, air transport is mostly used for goods of high value and
low volume such as medicines, spare parts for machinery, electronic components
etc. With the provision of large cargo planes, the use of air transport for goods has
considerably increased within the country and for international trade.

INTEXT QUESTIONS 2.5

Define the term ‘transportation’.

2. Suggest suitable mode of transportation in the following cases.
   (a) Transport of perishable goods within the country.
   (b) Transport of goods of high value and low volume.
   (c) Quickest mode for carrying passengers.
   (d) Convenient mode for short distance travel.
   (e) Economical mode of transport for long distance within the country.

2.5 COMMUNICATION

Communication is the process of transmission of ideas, opinions, thoughts and information
through speech, writing, gestures or symbols between two or more persons.
Communication always contains a message which is transmitted between the parties.
There are minimum of two parties involved in communication – one is ‘Sender’, and
the other is ‘Receiver’. The process of communication is said to be complete when the
receiver receives the message and responds to it or acts according to it.

2.5.1 Types of Communication

Based on the method used, communication may be oral, written or non-verbal. These
are explained in brief hereunder.

(a) Oral Communication : When a message is transmitted orally i.e., through spoken
words it is called oral communication. It may be in the form of lectures, meetings,
group discussions, conferences, telephonic conversations, radio message and so
on. It is considered to be quite an effective and economical method of

communication (both in term of money and time), and is most commonly used for
internal as well as external communication. The major drawback with verbal
communication is that it cannot be verified as normally it is not put on record.

(b) Written Communication : When a message is transmitted through written words
(in writing in the form of letters, telegram, memos, circulars, notices, reports etc. it
is called written communication. It provides a record of the message and feedback
which is available for verification as and when required. Normally, one is very
careful to the point and precise while sending a written communication. However,
it is formal, lacks personal touch and difficult to maintain secrecy.

(c) Non-verbal Communication : Communication without any use of words is called
non-verbal communication. Sometimes when you look at some pictures, graphs,
symbols, diagrams etc. some message is conveyed to you. All these are different
forms of visual communication. Bells, whistles, buzzers, horns etc. are also the
instruments through which we can communicate our message. Communication
with the help of these types of sounds is called ‘aural’ communication. Similarly,
communication is also made through some physical gestures through the use of
various parts of the human body through body language. This is termed as ‘gestural’
communication. Saluting our national flag, motionless position during the singing
of national anthem, waving of hands, nodding of head, showing anger on face, etc.
are all examples of gestural communication. When a teacher pats his student on
his back, it is considered as an appreciation of his work and it encourages the
student to do still better.

2.5.2 Communication Services

For sending the message or getting the response, you require a medium. Such medium
is termed as ‘means of communication’. It carries the message to the receiver and a
feedback or response from him. The commonly used means of communication are:
postal mail services, courier services, telephone, cellular phone, telegraph, internet,
fax, e-mail, voice mail. These means are also termed as ‘communication services’. Of
these, the main services which help business in its effective communication, are classified
as (1) Postal Services, and (2) Telecommunication Services.

2.5.3 Postal Services

The postal system in India was established in 1766 by Lord Clive for sending official
mails. It was made available to the public in 1837. The Indian postal service has the
largest network of 1,55,516 post offices throughout the country, out of 1,39,120 are in
rural areas. These are mainly concerned with collection, sorting, and distribution of
letters, parcels, packets, etc. Besides, a number of other services are also provided to
the general public as well as business enterprises. Let us classify the various postal
services as:

(a) Mail Services : The postal mail service deals with both inland and international
mails. An inland mail is one where the sender and receiver of the mail reside within
the same country. On the other hand, where the sender and receiver of the mail
reside in different countries it is called an international mail.

While sending a written message, the sender can make use of a post card, an
inland letter, or an envelope. For sending some item in a packet, parcel post
facility is provided. Articles in the form of printed materials, printed books,
periodicals, greeting cards can also be mailed by book post.

Besides these general mail services, some specialised mail services are also provided
by the post office for convenience of the public. Let us know these services in
brief.

(i) Certificate of Posting : For ordinary letters, the post office does not give
any receipt. But, if the sender wants a proof that he or she has actually
posted the letter, then a certificate can be obtained from the post office on
payment of prescribed fee which is called ‘certificate of posting’. These letters
are marked as ‘Under Postal Certificate’ (UPC).

(ii) Registered Post : If the sender wants that the mail should definitely be
delivered to the addressee otherwise it must return to him, then post office
offers ‘registered post’ facility. For this service, the post office charges
additional amount and issues a receipt for the registered post.

(iii) Insured Post : To compensate for the loss incase the letters or parcels get
damaged or lost in transit, the post office provides insured post facility. For
this the post office acts as an insurer. The insurance premium is paid by the
sender.

(iv) Speed Post : This facility provides quick, time bound as well as guaranteed
mail delivery in some selected destinations on payment of additional charge.
This facility is available in more than 1000 post offices in India and links with
97 countries.

(v) Post Restante : When the exact postal address of the receiver is not known,
the sender can avail of post restante facility. The letter can be sent to the
postmaster of the locality where the receiver resides. The receiver can collect
the letter from the post office on showing his identity. This facility is suitable
for tourists and travelling salesmen who are not sure about their address in a
particular place, or for any other person looking for a fixed address at a new
place.

(b) Financial Services : Various financial services are provided by the post office
through Saving Schemes, Remittance Services, and Distribution of Mutual Funds and
Securities.

(i) Saving Schemes: There are eight different schemes offered by the post
offices to mobilise the savings from the public. These are:
(a) Post Office Savings Bank Account
(b) 5-Year Post Office Recurring Deposit Scheme
(c) Post Office Time Deposit Account
(d) Post Office Monthly Income Scheme
(e) 6-Year National Savings Certificates (VIII Issue) Scheme
(f) 15-Year Public Provident Fund Account (PPF Account)
(g) Kissan Vikas Patra Scheme
(h) Senior Citizens Saving Scheme 2004

(ii) Remittance Service: Money can be conveniently transferred from one place
to other through the remittance service offered by the post office. It is in the
form of Money Order and Postal Order facility with the help of which people
can transfer money from one place to another within as well as outside the
country. Money order is an order issued by one post office to another post
office to pay a certain sum of money only to the person named therein. The
sender hands over the money to the post office and on payment of the requisite
fee, post office takes the responsibility of giving the money to the receiver. In
a single money order form, we can send a maximum amount of Rs. 5,000.
For the convenience of customers, post office offers different types of money
order services like Ordinary Money Order, Telegraphic Money Order, Satellite
Money Order, Speed-post Money Order, Instant Money Order (INO),
International Money Transfer Services, etc. For the convenience of
businessmen it also offers Corporate Money Order service.

Like Money Order, we can also send money through postal order i.e., Indian
Postal Order (IPO). It is a convenient method of sending money from one
place to another and is mainly used for remitting examination fees or while
applying for any job.

(iii) Distribution of Mutual Funds and Securities: This facility enables the
investors to purchase mutual funds and government securities through the
designated post offices. The mutual funds of State Bank of India, prudential
ICICI, RBI/Govt. Relief Bonds and ICICI Safety Bonds are available from
42 post offices at Bangalore, Chennai, Chandigarh, Delhi and Mumbai.

(c) Insurance Services : In addition to dealing with mail and remittance of money,
post offices also provide life insurance coverage to individuals. There are two

different schemes of insurance offered by post office. These are (i) Postal Life
Insurance (PLI), and (ii) Rural Postal Life Insurance (RPLI). The Postal Life
Insurance was introduced in 1884 as a welfare measures for the employees of
Posts and Telegraphs Department. Later on it was extended to the employees of
Central and State governments, public sector undertakings, universities,
government aided institutions, nationalised banks and financial institutions, local
bodies like Municipalities and Zilla Parisads. The employees of these organisations
who are below 50 years of age, can insure their life on payment of a fixed premium
for a particular period. The PLI offers five insurance schemes viz. (i) Suraksha
(whole life insurance) (ii) Suvidha (Convertible whole life assurance), (iii) Santosh
(endowment assurances) (iv) Sumangal (Anticipated endowment assurance), (v)
Yugal Suraksha (joint life endowment assurance for couples). Just like PLI, the
post office also provides life insurance coverage to the people living in rural areas
at low premiums under the scheme of Rural Postal Life Insurance (RPLI). This
was introduced on 24 March 1995. All the above mentioned plans are available
under RPLI also.

(d) Business Development Services : Besides carrying mail through various means
as discussed earlier, post office offers some special services to the business firms.
Let us learn in brief about those services.

(i) Business Post: In this service, post office undertakes all the pre-mailing
activities of the bulk senders. Pre-mailing activities include collection from
sender’s doorstep, insertion of goods in packet, pasting and addressing as
well as franking of mails, etc.

(ii) Media Post: The postal department offers a unique media to help the
corporate and government organisations to reach the potential customers
through media post. Under this facility, (a) advertisements are allowed on
post cards, inland letter cards and in other postal stationeries, and (b) space
sponsorship options on letter boxes.

(iii) Express Parcel Post : Post office offers a reliable, speedy and economical
parcel service to the corporate and business customers through its express
post. It provides a time bound door-to-door delivery of parcels upto 35
kgs. in weight and VPP services upto Rs. 50,000.

(iv) Direct Post : It allows the business houses to send the pamphlets, brochures
and other advertising materials like CDs, floppies, cassettes, samples, etc. to
the prospective customers at very low rates.

(v) Retail Post : The post office offers the facility to collect public utility bills
like telephone, electricity, and water bills, sale of application forms for
government and other private organisations, survey through postmen, address

verification through postmen are some of the activities undertaken under retail
post.

(vi) Business Reply Post : Under this facility post offices allow the customers
to send their reply through business reply post, which does not require any
postage from the sender. The post office recovers the postage from the
addressee later on.

(vii) Post Shoppe : Post shoppes are the small retail shops established for sale of
postal stationery items, greeting cards and small gift items to the customers.
These shops are found within the premises of some post offices.

(viii) Value Payable Post (VPP) : This facility is offered to meet the requirement
of the traders who wish to sell their articles and collect the price of articles
supplied by them through the post offices. Under this service, post office
receives the properly packed goods from the seller and carries those to the
customers. After receiving the total amount (the price of the goods plus the
VPP charges) from the customer, it delivers the goods to him/her. Later on,
the post office sends the amount due to the seller.

(ix) Corporate Money Order : Like individuals, business organisations can
also transfer money through money order. For them, the post office offers
Corporate Money Order Service. It enables business organisation to transfer
upto Rs. 1 crore to any part of the country.

(x) Post-box and Post-bag Facility : Under this facility, a particular number and
a box or a bag is allotted to the receiver at the post office to receive all
unregistered mails. Post office keeps all mails addressed to that number in
those boxes or bags. The addressee makes necessary arrangement to collect
the mails as per his convenience. This facility is mostly suitable for business
firms which want to receive their mail promptly. Those who do not have any
fixed address or those who do not want to disclose their names and address
can avail of this facility on payment of the specified rent.

(xi) Bill Mail Service : It provides cost effective solution for mailing of periodic
communication with nature of annual report, bills, monthly account bills or
other items of similar nature.

(xii) E-post : E-post service launched on 30th January, 2004 this has enabled
people to send and receive messages through e-mail in all post offices of the
country. To make it more useful for business, a corporate version of e-mail
was also launched on 18th October 2005, which allows simultaneous sending
of e-post to a maximum of 9999 addresses.

INTEXT QUESTIONS 2.6

Give one word substitute of the following communication.

(a) Conversation with the help of telephone.
(b) Communication through symbols and diagram.
(c) Traffic signal showing red light.
(d) Sending SMS to friends through mobile phone.
(e) Saluting our nation flag in different occasion.

Match the following

Column A Column B

(a) Retail post (i) Collection of letters from the customers’ doorstep
(b) Media post (ii) Compensation for loss or damage of the parcels
(c) Direct post (iii) advertisement on post card
(d) Business post (iv) Collection of telephone bill
(e) Insured post (v) Sending pamphlets to prospective customers

2.5.4 Telecommunication Services

The first telegraph line between Kolkata and Diamond Harbour was opened for traffic
in 1851. The first telephone service was introduced (in Kolkata) in 1881-82, and the
first automatic exchange was commissioned at Shimla in 1913-14. As of now, India is
the 10th largest telecom network in the world in terms of number of phones. The various
telecommunication services now available in India are as follows.

(a) Fixed Line Phone : The fixed line phone or telephone is a very popular means of
verbal communication. It is widely used for internal and external business
communications. It facilitates both oral conversation as well as sending written
text messages. Both government and private telecom companies provide this service
in our country.
(b) Cellular Services : Now-a-days, cellular phones or mobile phones are very
popular as they give access to the receiver at all times and everywhere. This is an
improvement over the fixed line telephone. It possesses many modern features
like Short Messaging Services (SMS), Multi Media Messaging Services (MMS)
etc. MTNL. BSNL, Airtel, Idea, Hutch, Reliance and Tata are the leading mobile
phone service providers in our country.

(c) Telegram : It is a form of written communication by which messages can be sent
quickly to distant places. It is generally used when there is an urgency of
communicating an important message. Now a days this facility is not available
in any of the telegraph offices.

(d) Telex : Telex provides a means of printed communication using teleprinter. The
teleprinter is a tele-typewriter having a standard keyboard and connected through
telephone.
(e) Fax : Fax or facsimile is an electronic device that enables instant transmission of
handwritten or printed matters to distant places. By using telephone lines, this
machine sends the exact copy of the document to another fax machine at the
receiving end. This is the most commonly used means of written communication in
business now-a-days.

(f) Voice Mail : It is a computer based system for receiving and responding to
incoming telephone calls. It records and stores telephone messages through
computer memory. The caller can get the required information by dialing the voice
mail number and then following the instructions of the computer. The individuals
can also record their messages through voice mail. The receivers at their own
convenience can get the message from the machines and take action accordingly.

(g) E-mail : Electronic mail, popularly known as e-mail is a modern means of
communication that transmits the written message, pictures or sounds etc. from
one computer to the others connected through internet facility.

(h) Unified Message Service : It is a system by which fax, voice mails and e-mails
(all three) can be received from one mail box using telephone instrument, fax
machine, mobile phones, internet browsers, etc.

(i) Teleconferencing : Teleconferencing is a system through which people can interact
without physically sitting in front of each other. People can hear the voice and see
the picture of others and also respond to their queries while sitting in different
countries. It makes the use of modern electronic devices like telephone, computers,
television etc.

2.5.5 Importance of Communication

(a) Promotion of Business : Because of modern means of communication,
businessmen sitting at different places can finalise their business deals without
much difficulty. They can make enquiries, settle terms and conditions, place orders
and send confirmation. It has helped in the growth of national as well as international
trade.

(b) Mobility of Labour : People who have gone for employment to places away
from their homes and families are able to keep in touch with their friends and
relatives through the various means of communication. So they willingly go to far
off places for employment.

(c) Socialisation : Through communication facilities like telephone, fax and e-mail
etc. people are able to exchange messages, information etc. with their friends and
relatives on a regular basis. This helps in maintaining and developing social relations
among people.
(d) Coordination and Control : Offices of big business houses and government
departments may be situated at different places. There may be many departments
in the same building. Effective communication between them helps in coordinating
their activities and exercising control over them.
(e) Efficiency in Job Performance : Effective communication contributes a great
deal to higher in job performance as regular communication within a business unit
ensures a willing cooperation of others due to the close understanding of ideas
and instructions.
(f) Helpful to Professionals : Lawyers are to attend courts situated at different
places, doctors are to visit different nursing homes, chartered accountants have to
go to different offices of companies. Mobile phones help these professionals in
changing and adjusting their schedule as required without any difficulty.
(g) Meeting Emergencies : In the event of accidents or incidents of fire, immediate
help can be asked for and made available through modern means of communication.
(h) Sea and Air Navigation : Means of communication are extremely important for
the navigation of ships and aircrafts which need to be guided from control rooms
at particular locations.
(i) Spread of Education : Broadcasting of educational programmes on radio and
telecasting on televisions are popular means of educating students without the
necessity of personal coaching.
(j) Advertisement : Radio and television as means of mass communication have
increasingly become important as media of advertisement for business firms as it
is possible to reach the masses by such means.

INTEXT QUESTIONS 2.7

1. Mention any two problems we may face in the absence of telecommunication
   services.

2. Complete the following incomplete words by taking clues from the statement given
for each. Every blank represents one letter only. First one has been done for you.
(a) T _ L _ X (TELEX)
(b) V _ _ C __ MAIL

(c) _ _ X
(d) T _ L _ _ R _ M
(e) E _ M _ _ _

Clues

(a) Communication using tele-printer
(b) Computer based system for receiving and responding the incoming telephone
calls.
(c) Machine that transmits hand written massage instantly.
(d) A form of written communication.
(e) Communication of written message through internet.

2.6 WAREHOUSING

The words ‘warehouse’ and ‘godown’ are synonymous and so warehouse refers to a
place used for storing goods, and warehousing refers to the activities involving storage
of goods on a large-scale in a systematic and orderly manner and making them available
conveniently when needed. In other words, warehousing means holding or preserving
goods in huge quantities from the time of their purchase or production till their actual
use or sale. Thus, it creates time utility by bridging the time gap between production
and consumption of goods.

2.6.1 Importance of Warehousing

As stated earlier, warehousing bridges the time gap between production of goods and
their consumption, and thus, serves useful purpose particularly for large-scale business
operations. Based on its uses, its importance can be briefly described as follows.

(a) Storage of Raw Materials : To maintain continuity in production, a good quantity
of raw materials is to be kept in stock. Not only that, some raw materials are only
available in specific period of the year (cotton, oilseeds etc.) while these are used
for production throughout the year. So, these have to be kept in stock for use as
and when required.

(b) Storage in Anticipation of Rise in Price : In case the manufacturer anticipates
a rise in prices of raw materials in future he/she likes to purchase it in advance and
stock it. It equally applies to traders of goods if they expect price rise.

(c) Storage of Finished Goods : Since goods are generally produced in anticipation
of demand, these need to be stored till sales take place. Not only that, some
goods are produced round the year but purchased/used during a specified part of

the year e.g. electric fans, woollen clothes. Similarly, some goods may be produced
during a part of the year but used throughout the year like sugar.
(d) Storage of Goods by the Wholesalers : Wholesalers buy goods in bulk and
maintain stock of goods in warehouses for sale in small quantities to retailers from
time to time.
(e) Packaging and Grading : Goods in warehouses are divided into grades according
to size or quality and packaging is done for convenient handling and sales.
(f) Use for Importers : Warehouses (known as bonded warehouse) are used for
storage of imported goods till the importer is able to pay the customs duty and
take delivery.
Based on the above uses of warehousing, it can be concluded that it is an important link
in the chain of marketing and adds to the time and place value of goods. It also
smoothens out fluctuations in their supply and demand. So, wherever there is trade
and commerce, there is need for warehousing.

2.6.2 Types of Warehouses

You have learnt that warehousing caters to the storage needs of various types of
commodities. In order to meet their storage requirement effectively, various types of
warehouses came into existence. These are as follows.

(a) Private Warehouses : The warehouses which are owned and operated by the
manufacturers or traders to store exclusively their own stock of goods, are known
as private warehouses.
(b) Public Warehouses : The public warehouse is an independent unit which stores
goods of other firms. Any one can store his goods in these warehouses on payment
of rent.
(c) Government Warehouses : These warehouses are owned, managed and
controlled by the government. Central Warehousing Corporation of India, State
Warehousing Corporation and Food Corporation of India are examples of
government warehouses. Both government and private enterprises may use these
warehouses to store their goods.
(d) Bonded Warehouses : Bonded warehouses to store imported goods for which
import duty is yet to be paid. These warehouses are generally owned by dock
authorities and found near the ports.
(e) Co-operative Warehouses : These warehouses are set up by the cooperative
societies for the benefits of their members. They provide warehousing facilities at
the most economical rates.

2.6.3 Functions of Warehouses

The warehouses preserve goods on a large-scale in a systematic and orderly manner.
They provide protection to goods against heat, wind, storm, moisture, etc. and also
minimize losses due to spoilage, wastage etc. In addition to this, warehouses now a
days also perform a variety of other functions as stated below:

(a) Storage of Goods : The basic functions of warehouses is to store goods properly
till they are required for use, consumption or sale.
(b) Protection of Goods : A warehouse provides protection to goods from loss or
damage due to heat, dust, wind and moisture, etc. It makes special arrangements
for different products according to their nature.
(c) Risk Bearing : The risk of loss or damage to goods in storage is borne by the
warehouse keeper. So, he takes all precautions to ensure their safety.
(d) Financing : When goods are deposited in any warehouse, the depositor gets a
receipt which acts as a proof of the goods in store. This receipt can be used as a
security to obtain loans and advances from the banks and other financial institutions.
Some warehouse keepers themselves advance money to the depositors for a
short period against the security of their goods in their warehouses.
(e) Processing : Certain commodities are not consumed in the form they are produced.
Processing is required to make them consumable. For example, paddy is polished,
timber is seasoned, and fruits are ripened, etc. Sometimes warehouses also
undertake these activities on behalf of the owners.
(f) Value Added Services : The warehouse keeper may also undertake to perform
the functions of grading and branding of goods on behalf of the manufacturer,
wholesaler or the importer of goods. He may provide facilities for mixing, blending
and packaging of goods for convenience in handling and sale.
(g) Transportation : In some cases warehouses provide transport arrangement to
the bulk depositors. It collects goods from the place of production and also sends
goods to the place of delivery on request of the depositors.

INTEXT QUESTIONS 2.8

Give the meaning of warehousing.

2. Identify the type of warehouse in the following cases.
   (a) Warehouse to store the goods of public.
   (b) Warehouses owned and managed by government.

(c) Warehouses for storage of imported goods on which import duty is yet to be
paid.
(d) Warehouses set up for the benefit of its members.
(e) Warehouses owned and managed by private traders for stocking their goods.