The concept of domestic territory, also called economic territory, is different from the geographical or political territory of a country. In national income accounting, domestic territory refers to the area within which the economic activities of a country are treated as taking place.
It is important because GDP measures the value of final goods and services produced within the domestic territory of a country, irrespective of whether the producer is an Indian citizen or a foreigner.
Political Boundaries and Territorial Waters
Embassies, Consulates and Military Establishments Abroad
Ships and Aircraft Operated by Residents
Fishing Vessels, Oil Rigs and Floating Platforms
Foreign Embassies and Consulates Located in India
Offices of International Organisations
Domestic territory is an important concept in national income accounting because GDP is calculated on the basis of production taking place within the economic territory of a country. It is wider than the geographical boundary and includes territorial waters, resident-operated ships and aircraft, fishing vessels, oil rigs, and the country’s embassies and military establishments abroad.
At the same time, foreign embassies, foreign military establishments and offices of international organisations located within the country are excluded. Thus, GDP is based on the place of production, not the nationality of the producer. This helps us clearly understand why production by foreign companies within India is included in India’s GDP, while production by Indian companies outside India is not included in India’s GDP.
What is domestic territory in economics?
Domestic territory, also called economic territory, refers to the territory within which economic activities are treated as taking place for national income accounting. GDP measures production occurring within this territory.
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