4.1 Introduction
- Business services are crucial for the functioning of various businesses, such as petrol pump owners, who rely on transport, warehousing, communication, banking, and insurance services.
- Services are economic activities that are intangible and involve an interaction between the service provider and the consumer. They provide satisfaction of wants and are not necessarily linked to the sale of a product.
- A good is a physical product that can be delivered to a purchaser and involves the transfer of ownership.
4.2 Nature of Services: The Five Is
There are five basic features of services, also known as the “five Is,” which distinguish them from goods:
- Intangibility: Services cannot be touched; they are experiential in nature. Their quality often cannot be determined before consumption.
- Example: A doctor’s treatment can only be experienced.
- Inconsistency: Services have to be performed exclusively each time due to varying customer demands and expectations. Service providers need to be able to alter their offers.
- Example: Mobile services.
- Inseparability: Production and consumption of services occur simultaneously.
- Example: Eating ice cream in a restaurant involves simultaneous production and consumption, unlike buying ice cream from a store.
- Inventory (Less): Services have little or no tangible components and cannot be stored for future use. They are perishable.
- Example: A railway ticket can be stored, but the journey is experienced only when provided.
- Involvement: Customer participation is crucial in the service delivery process, allowing for modification according to specific requirements.
- Example: Self-service in a fast-food joint.
4.2.1 Difference between Services and Goods
| Basis | Services | Goods |
| Nature | An activity or process (e.g., watching a movie) | A physical object (e.g., video cassette of movie) |
| Type | Heterogeneous | Homogenous |
| Intangibility | Intangible (e.g., doctor treatment) | Tangible (e.g., medicine) |
| Inconsistency | Different customers having different demands (e.g., mobile services) | Different customers getting standardised demands fulfilled (e.g., mobile phones) |
| Inseparability | Simultaneous production and consumption (e.g., eating ice-cream in a restaurant) | Separation of production and consumption (e.g., purchasing ice cream from a store) |
| Inventory | Cannot be kept in stock (e.g., experience of a train journey) | Can be kept in stock (e.g., train journey ticket) |
| Involvement | Participation of customers at the time of service delivery (e.g., self-service in a fast food joint) | Involvement at the time of delivery not possible (e.g., manufacturing a vehicle) |
4.3 Types of Services
Services are broadly classified into three categories:
- Business Services: Used by business enterprises for their activities.
- Examples: Banking, insurance, transportation, warehousing, and communication services.
- Social Services: Provided voluntarily for social goals, such as improving living standards for weaker sections, education, or healthcare.
- Examples: Healthcare and education services by NGOs and government agencies.
- Personal Services: Experienced differently by different customers and are inconsistent in nature, depending on the provider and customer preferences.
- Examples: Tourism, recreational services, restaurants.
4.4 Banking
Commercial banks are important institutions providing institutional credit. Banking involves accepting deposits for lending and investment, repayable on demand or otherwise, and withdrawable by cheques, draft, or order. Banks mobilize savings and provide funds to businesses, dealing in financial instruments and services for a price (interest, discount, commission).
4.4.1 Types of Banks
Banks are classified into:
- Commercial Banks: Institutions dealing in money, governed by the Indian Banking Regulation Act 1949. They accept deposits for lending or investment.
- Types: Public sector (government has major stake, social objectives emphasized) and Private sector (owned, managed, and controlled by private promoters, operate as per market forces).
- Cooperative Banks: Governed by State Cooperative Societies Act, provide cheap credit to members, important for rural and agricultural financing.
- Specialised Banks: Cater to specific needs like foreign exchange, industrial, development, and export-import financing.
- Central Bank: Supervises, controls, and regulates all commercial banks; acts as a government banker; controls currency and credit policies.
- Example: Reserve Bank of India (RBI).
4.4.2 Functions of Commercial Banks
Banks perform primary and allied functions:
- Acceptance of deposits: Banks accept deposits through current accounts, savings accounts, and fixed deposits.
- Current accounts: Withdrawals can be made anytime without notice.
- Savings accounts: Encourage savings, have some withdrawal restrictions.
- Fixed deposits: Time deposits with higher interest rates; premature withdrawal is permissible with interest forfeiture.
- Lending of funds: Provide loans and advances (overdrafts, cash credits, discounting trade bills, term loans, consumer credits) from deposits.
- Cheque facility: Banks collect cheques drawn on other banks, and cheques are a convenient and inexpensive medium of exchange.
- Types: Bearer cheques (encashable immediately) and crossed cheques (deposited only in payee’s account).
- Remittance of funds: Facilitate fund transfers between places using bank drafts, pay orders, or mail transfers.
- Allied services: Bill payments, locker facilities, underwriting, buying/selling shares and debentures, payment of insurance premiums, collection of dividends, etc..
4.4.3 e-Banking
e-banking (electronic banking) uses electronic media to conduct banking transactions. It is a part of virtual banking, allowing users with a PC and browser to access bank services online without a human operator.
- Range of services: Automated Teller Machines (ATM), Point of Sales (PoS), Electronic Data Interchange (EDI), Credit Cards, Electronic/Digital cash, Electronic Bank Transfer (EFT).
- EFT methods: NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement).
- Benefits for Customers:
- Facilitates digital payments and promotes transparency.
- Provides 24/7 services.
- Allows transactions from various locations via personal computer or mobile.
- Inculcates financial discipline by recording transactions.
- Offers greater customer satisfaction, unlimited bank access, and reduced risk from carrying cash.
- Benefits for Banks:
- Provides competitive advantage.
- Offers an unlimited network beyond physical branches.
- Reduces load on branches through centralised databases and accounting functions.
4.5 Insurance
Insurance is a device to minimize the impact of uncertainties and potential losses by spreading the risk over a number of persons exposed to it. It is a contract where one party (insurer) agrees to pay an amount to another party (insured) for loss, damage, or injury to something of value in which the insured has a pecuniary interest, in return for a consideration (premium). The contract is called a ‘policy’.
4.5.1 Fundamental Principle of Insurance
The basic principle is the substitution of a small periodic payment (premium) for the risk of a large possible loss, spreading the loss among many policyholders. Insurance is a form of risk management and the equitable transfer of potential loss from one entity to another for a fee.
4.5.2 Functions of Insurance
- Providing certainty: Insurance provides certainty of payment for the risk of loss, removing uncertainties regarding time and amount of loss.
- Protection: Offers protection from probable chances of loss by compensating for losses, though it cannot stop the event itself.
- Risk sharing: Losses from a risk event are shared by all exposed persons through premiums.
- Assist in capital formation: Accumulated premium funds are invested in income-generating schemes.
4.5.3 Principles of Insurance
These principles govern valid insurance contracts:
- Utmost good faith (Uberrimae Fidei): Both insurer and insured must display good faith and disclose all material facts voluntarily and accurately. Failure to disclose material facts can make the contract voidable.
- Insurable Interest: The insured must have a pecuniary interest in the subject matter, meaning they would suffer financially if the insured event occurs.
- Indemnity: Applicable to fire and marine insurance, the insurer undertakes to place the insured in the same financial position they were in immediately before the loss. This principle is not applicable to life insurance.
- Proximate Cause: Compensation is provided only for losses caused by perils stated in the policy. When multiple causes exist, the direct, dominant, and most effective cause is considered.
- Subrogation: After a claim settlement, the insurer has the right to stand in the place of the insured to recover from an alternative source. Ownership of the damaged/lost property passes to the insurer to prevent the insured from profiting.
- Contribution: In cases of double insurance, liable insurers share losses proportionally. The insured cannot recover more than the actual loss.
- Mitigation: The insured must take reasonable steps to minimize loss or damage to the insured property. Failure to do so may result in loss of claim.
4.5.4 Types of Insurance
Insurance is broadly classified as:
- Life Insurance: A contract where the insurer pays a sum to the assured upon a specified event contingent on human life or at the expiry of a period, in consideration of premiums. It provides protection against premature death or financial security in old age.
- Elements: Must have essentials of a valid contract, is a contract of utmost good faith, insured must have insurable interest in the life assured, and is not a contract of indemnity.
- Types of policies: Whole Life Assurance, Endowment plans, Children’s Assurance plans, Annuity plans, disability insurance, health/medical insurance.
- Fire Insurance: Insurer undertakes to compensate for loss or damage caused by fire during a specified period up to the amount specified in the policy.
- Elements: Insured must have insurable interest, is a contract of utmost good faith, is a contract of strict indemnity, and the insurer is liable only when fire is the proximate cause.
- Marine Insurance: Agreement where the insurer indemnifies the insured against marine losses (perils of the sea).
- Elements: Not strictly a contract of indemnity, but promises to indemnify “in the manner and to the extent agreed”. It is a contract of utmost good faith. Insurable interest must exist at the time of loss. The principle of causa proxima (proximate cause) applies.
- Cattle Insurance: Secures a sum in the event of death of animals due to accident, disease, or pregnant condition.
- Crop Insurance: Provides financial support to farmers for crop failure due to drought or flood, covering risks to production of various crops.
- Sports Insurance: Comprehensive cover for amateur sportsmen for equipment, personal effects, legal liability, and personal accident risks. Not for professionals.
- Amartya Sen Siksha Yojana: Secures education of dependent children if the insured parent/guardian suffers bodily injury leading to death or permanent total disablement.
- Rajeswari Mahila Kalyan Bima Yojana: Provides relief to family members of insured women in case of death or disablement from accidents or problems incidental to women.
Social Security Schemes
The document also mentions several social security schemes:
- Atal Pension Yojana: For individuals aged 18-40, contributing until 60 for old-age pension.
- Pradhan Mantri Suraksha Bima Yojana: Accidental and disability cover of Rs. 2 lakh at a premium of Rs. 12/year for savings account holders.
- Pradhan Mantri Jan Dhan Yojana: Offers savings accounts with no minimum balance and Rupay ATM-cum-Debit card with in-built accident and life cover.
- Pradhan Mantri Jeevan Jyoti Bima Yojana: Term insurance cover of Rs 2,00,000 for dependents in case of policyholder’s death, for individuals aged 18-70 with a savings account.
4.6 Communication Services
Communication services enable businesses to link with suppliers, customers, and competitors. They need to be efficient, accurate, and fast, relying heavily on electronic media. Main types are postal and telecom services.
- Telecom Services:
- Cellular mobile services: Voice and non-voice messages, data services, PCO services.
- Fixed line services: Voice and non-voice messages, data services, primarily via fiber optic cables.
- Cable services: Linkages and switched services for media (entertainment), with future potential for two-way communication.
- VSAT services (Very Small Aperture Terminal): Satellite-based communication for businesses and government in urban and rural areas, offering reliable service for innovative applications like tele-medicine and tele-education.
- DTH services (Direct to Home): Satellite-based media services received directly via dish antenna and set-top box, offering multiple channels independent of cable networks.
4.7 Transportation
Transportation includes freight and auxiliary services by rail, road, air, and sea for moving goods and international passengers.
4.8 Warehousing
Warehousing involves the storage of goods in a scientific and systematic manner to maintain quality, value, and usefulness. Modern warehouses act as logistical service providers, ensuring the right quantity at the right place, time, and cost. They are often automated.
- Types of Warehouses:
- Private Warehouses: Operated, owned, or leased by a company for handling their own goods (e.g., retail chains). Benefits include control and flexibility.
- Public Warehouses: Used for storage by traders, manufacturers, or the public upon payment of a fee. Regulated by government, they provide other facilities and are convenient for small manufacturers.
- Bonded Warehouses: Licensed by the government to accept imported goods before payment of tax and customs duty. Goods can be kept here until duty is paid, allowing for partial removal and payment in installments. They offer facilities for branding, packaging, grading, and blending.
