Kautilya’s Arthashastra – Treasure of true Economics

Have you ever wondered when did Bharat’s first economic thought emanate? The outwardly theory suggests that Greek’s Plato and Aristotle were the first ones to ground economics into reality in 4th Century, BCE. Albeit, Bharat’s Arthshastra, (a branch of Rig – Veda as mentioned in Atharva Veda) was scripted at least 2300 years ago by Kautilya, more commonly known as Chanakya. He is considered as a pioneer of political science and economics in Bharat.

Chanakya first served Chandragupta, the first king of the Mauryan Empire as a chief advisor. His policies were powerful enough for the Mauryan empire to rise to power and rule from 321 BCE to 185 BCE.

Vedic Heritage“, an initiative by Indira Gandhi National Centre for Arts, Ministry of Culture, is a platform by the government that has various ancient Hindu Scriptures uploaded in digital form. The website contains all four Vedas and also a wide array of books on topics from Agriculture to Astronomy, Astrology to women Seers. If one wishes to dive deep into the history of Vedic period, this website might help.

I was quite excited when I first discovered this website and my attention struck on “Arthshastra”. This ancient scripture, authored in Sanskrit on palm leaves, contains treatise on statecraft, economic policy and military strategy.  It was first translated in English in the year 1915 and literally means “science of wealth”. Kautilya Arthashastra is divided into 15 Departments known as Adhikarana and includes 21 chapters in total.

It is a collaboration of several works and includes books on the nature of government, law, civil and criminal court systems, ethics, economics, markets and trade, the methods for screening ministers, diplomacy, theories on war, nature of peace, and the duties and obligations of a king. The text also incorporates Hindu philosophy along with economic and cultural notes on sectors like agriculture, mineralogy, mining and metals, animal husbandry, medicine, forests and wildlife.

As per an article on Economic Ideas of Kautilya – A critical estimate, following are some of the key remarks made in Arthashastra relating to our ancient Economic Environment:

  1. Agriculture:

As for the ancient times, one is aware that agriculture and animal husbandry formed the backbone of Bharat’s economy. Art of agriculture was perfected with techniques such as rotation of crops, intensive and extensive cultivation, large and small scale farming, use of fertilizers, crop diseases and their eradication, irrigation by rivers and tanks, cattle farming, seed selection, evils of the fragmentation of holdings etc. Largest source of State income was land revenue.

The State and the community were responsible for the development of agriculture for which the wastelands were to be cleared. The value of the land was determined based on its fertility. The fair prices of agricultural produce were fixed by the state to save cultivators from the clutches of traders.

  1. Wealth:

The definition of wealth in Kautilya’s mind included a wide array of tangibles and intangibles. To him, wealth included money, commodity, the acquired wealth, public or private property, precious metals, the accumulated wealth, negotiable and transferability and the power of appropriation. Labour and forest produce were important components of wealth too.

He claimed that wealth earned through proper means is justified and that accumulation of wealth was a safe method for protecting the people against famines.

  1. Labour:

Kautilya contributed a great deal in regulation of wages and for the settlement of disputes between employers and workers. He did not recommend slave labour. A code of labour discipline was laid down with punitive measures. An employee, who abandoned his work before the term had expired, was to pay the whole amount of stipulated wages to his employer and a fine to the King.

On the other hand, if an employer dismissed a workman whom he had hired before the expiration of the term agreed upon, he must pay the full amount of wages stipulated and a fine to the King, unless the workman was to blame.

  1. Economic Functions of the state:

Kautilya’s concept of state is founded on Industrial edifice. According to him, there are guiding principles for the state, first, the state should undertake those industries, which help directly in making the nation self-sufficient and self-reliant, and e.g., gold, silver, diamonds and iron and other metals should be in the charge of the state.

Activities relating to production, distribution and consumption are carried out efficiently and in accordance with the rules framed by it. It also regulated the wages and working condition of workers, and helped the farmers in times of calamities.

  1. Public Finance:

Taxation was one of the most important sources of revenue of the state. Land Revenue was an important source of taxation in ancient Bharat. The system was described as one where “The tax system should be such as not to prove a great burden to the public”. Taxes were the remuneration for the services rendered by the king as a public functionary for providing internal security to his subjects. Kautilya suggested forced loans for meeting deficit budgets.

He divided income from taxes into the following three kinds:

(a) Income from taxes on commodities produced in the country,

(b) Income from taxes on commodities produced in the capital, and

(c) Income from taxes imposed on imports and exports.

Sources of Revenue included taxes on land, forests, monopoly and property, customs and excise duties, fines, profits of state, factories and crown monopolies, from manufacture and sale of saffron, salt, intoxicants, trade in horses, fine wool and elephants and port dues, road tolls, fruit and tree tax etc.

The usual import tax was 20 %, which varied from time to time in case of precious stones and rare commodities. Heavy taxes were imposed on the importation of luxury goods. The policy of the state was to discourage the import of luxury goods and those that were harmful for the welfare of the State. He suggested an-efficient machinery for audit.

  1. Consumption & Production:

For consumption purposes, family was regarded as an economic unit. Consumption should have four ideas, namely, Dharma, Artha, Kama, and Moksha. The individual was subordinate to the family or the community. As far as production was concerned, the four agents of production namely, land; labour, capital and organisation were recognised. Land was considered as the main source of wealth.

  1. Trade:

Gold and bullion was regarded as a means of producing wealth, and trade was the sum of industrialised capital. Kautilya devoted a good deal of attention to the problems of trade such as regulation and development of trade by the state and the different taxes to be levied on the commodities that entered into trade. He even advocated state trading in certain commodities through departmental agencies.

States were advised to build rest houses and store houses for the caravans of traders for whom police escorts were recommended. In addition, trade was allowed to take place only when the supplies of commodities were left over after satisfying local needs.

According to Kautilya, the study of four sciences namely, philosophy, ethics, economics and politics was combined together. The economic teachings were in a sense didactic, essential for the salvation of individual.

To infer, some aspects of ancient economic thought also apply to modern day economics. Post –pandemic policies have albeit, consciously or subconsciously regressed to Kautilya’s quaint ideas. Some hints can be seen in Atmanirbhar Bharat’s Production linked incentive scheme Policy, rationalisation of taxes and reclaiming Agriculture.


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About the Author

Samiksha Punamiya
An ardent researcher, deeply inclined toward understanding economics and policy making. Rich in experience of writing on economic research on various platforms. I am a CA by qualification having about five years of experience in financial services space.