Before proceeding with this topic it is very important to know the concept of Economic territory and Resident.
In layman term, Indian territory is territory from Kashmir to kanyakumari and Gujarat to Arunachal. But in technical terms these are our political frontiers. For calculating the domestic income of India, we should know about Economic territory.
What is Economic territory ?
This is larger concept of territory, not limited to Indian borders. Consider the following:
- Territorial waters (i.e 22 kms from the shore)
- Air Space (Till we don’t reach satellites in space)
- Embassies (It is located in capital city) & Consulates (Located in any city other than capital. Say US consulate in Kolkata)
- Our Ships and Aircraft moving anywhere in world.
- Fishing vessels – Our fishing vessels in Indian waters for commercial fishing
- Oil rigs – Indian resident owned oil rigs, say Reliance oil rig in Indian ocean.
Answer is clear, we have to include all above factors with political frontiers, to come up with concept of economic territory of our country.
Definition: “Territory administered by government within which Goods, Persons & Capital circulate freely”.
What become so much special about economic territory in national income accounting ?
To calculate the domestic income of India, we have to take monetary value of economics activities going on above the economic territory.
For example, Indian domestic income will also include salary of employee working in Indian embassy in USA or anywhere in world because Indian embassies anywhere in world become part of our economic territory. (Irrespective of employee’s nationality)
Proudpoor mentions: Whenever you are asked about the domestic income, consider the land on which economic activity is going on. Keep this as simple as you can, because for calculating National income we will consider Person. So Land = Domestic income & Person = National income.
Residents: My friend Rohan lives in USA. He left India 2 months back.
Is Rohan Resident of India or USA ? & Why this classification matters ?
To calculate the National income of India, we have to calculate monetary value of economic activities of our Residents.
Answer to above question depends on the stay of Rohan, Some economists consider stay of more than 6 months to become a resident, whereas some consider 1 year minimum.
So Rohan is surely Indian resident and his income will be included in Indian national product.
Definition of Resident: Easiest definition by Indian govt. under Fema act.
“A person who resided in India for a period of 182 days during previous financial year. ”
hence Indian govt. is considering period of 6 months.
Some Implications : I am staying in India since birth, I am resident as well as citizen.
My Pakistani friend who lives here since 2011, is Indian resident but not citizen.
Rohan who left India 2 months back, is Citizen as well as Resident of India, unless he completes 6 months in USA.
Domestic income: Monetary value of economic activities in economic territory.
National income: Monetary value of economic activities of residents.
How to calculate India National income from Domestic Income ?
In last article, we read about NFIA (Net factor income from Abroad), in which we took out foreigners factor income from India and took in Indians factor income from foreign.
NFIA figure can positive as well as negative, given which nation’s factor income from abroad exceeds.
If we add NFIA figure to Domestic income, we will get our national income.
In Indian case, NFIA is negative because Foreign companies are sending way more profit (Factor income) to their homeland, compared to Factor income we are receiving. That means our National income will be less than Domestic income.
Say Indian domestic income = 100 and NFIA = -1
100 (domestic income) + (-1) NFIA = 99 (National income). Clearly 100>99, i.e Domestic income is less than National income.
“Domestic income + NFIA = National Income”
** Residents can be a business or institution too, as it is owned by someone, in name of an entity