a) Types of Economic Activities

Economic activities are those actions involving the production, exchange, and consumption of goods and services for a monetary motive. They are broadly categorized into four pillars:

1. Production: The process of converting inputs into finished goods or services that possess utility. It utilizes the four factors of production.

○ Example: A textile mill in Gujarat converting raw cotton into finished shirts.

2. Consumption: The act of using goods and services to satisfy human wants. It is the end point of economic activity and determines the level of demand.

○ Example: A household purchasing and using the shirts produced by the mill.

3. Distribution: This refers to the allocation of total income generated (National Income) among the factors of production as their respective rewards.

○ Example: The mill owner paying Wages to workers, Rent for the factory land, and Interest on bank loans.

4. Investment (Capital Formation): That part of production not consumed but used to create new assets to boost future production.

○ Example: The mill owner is using part of the profit to buy new automated machinery to increase output next year.

b) Domestic Territory of India

In National Income accounting, “Domestic Territory” is an economic concept rather than just a geographical one. It is the territory administered by the government within which persons, goods, and capital circulate freely. It includes:

1. Political Frontiers: Includes the landmass and territorial waters up to 12 nautical miles from the coast.

○ Example: A factory located in Mumbai or a fishing boat operating 5 miles off the Chennai coast.

2. Embassies and Consulates: Indian diplomatic missions located abroad are part of India’s domestic territory (conversely, foreign embassies in Delhi are excluded).

○ Example: The Indian Embassy in Washington D.C. is considered the domestic territory of India.

3. Transport Operations: Ships and aircraft operated by Indian residents across international borders.

○ Example: An Air India flight flying between London and New York is part of India’s domestic territory.

4. Special Zones: Oil rigs and floating platforms operated by residents in international waters where they have exclusive rights.

○ Example: ONGC’s oil rigs in the international waters of the Arabian Sea (outside the 12nm limit) are part of India’s domestic territory.