Domestic Territory and Normal Residents

Understanding economic territory beyond political borders and the concept of normal residents for national income accounting.

Notes

What is Domestic Territory?

UN Definition:“Economic Territory or domestic territory is the geographical territory, administered by a government within which, persons, goods, and capital circulate freely.”

Domestic territory is not limited to political frontiers. It includes ships, aircraft, fishing vessels, and embassies operated by residents abroad — and excludes foreign embassies and international organisations within the country.

Included in Domestic Territory

Political frontiers of a country

The entire landmass, territorial waters, and airspace of India.

Ships and Aircraft operated by residents between countries

Air India planes flying between Delhi and Tokyo — part of India's domestic territory.

Fishing vessels, oil rigs in international waters with exclusive rights

Indian fishing boats operating in the Indian Ocean — part of India's domestic territory.

Embassies, consulates, military establishments abroad

Indian Embassy in Moscow — legally part of India's domestic territory.

Excluded from Domestic Territory

Foreign embassies, consulates, military establishments

American Embassy in Delhi — part of USA's domestic territory, not India's.

International organisations (UNO, WHO) within boundaries

UNO office in New York — not part of USA's domestic territory.

Normal Residents — Centre of Economic Interest

Normal Resident

An individual or institution who ordinarily resides in the country and whose centre of economic interest also lies in that country. Normal residents include both individuals and institutions.

Centre of Economic Interest implies:1. The resident lives or is located within the Domestic Territory2. The resident carries out basic economic activities — earnings, spending, and accumulation from that location

Who is NOT a Normal Resident? (Click each to expand)

Citizenship vs. Residentship
Aspect	Citizenship	Residentship
Nature	Legal concept	Economic concept
Based on	Place of birth or legal provisions	Ordinary residence (>1 year) + centre of economic interest
Example	Person born in India = Indian citizen	Chinese person in India >1 year = normal resident of India (but not citizen)
Key insight	NRI is citizen of India but resident of country where they live	A person can be citizen of one country and resident of another

Domestic Product vs. National Product

Domestic Product vs. National Product
Aspect	Domestic Product	National Product
Based on	Domestic Territory	Normal Residents
Includes	Production by all units within domestic territory (residents + non-residents)	Production by normal residents (within + outside territory)
Excludes	Production by residents outside territory	Production by non-residents inside territory
Money value term	Domestic Income	National Income
Key question	Where was it produced?	Who produced it?