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The need to recognize Chanakya’s Genius today

A polymath of diverse abilities, Chanakya was one of the defining forces responsible for shaping not just the Mauryan Empire, but Indian history itself. As the chief advisor to both emperors Chandragupta and Bindusara, Chanakya’s policies orchestrated the unification of the Indian subcontinent under a single rule for the first time under the Mauryan Dynasty. This massive feat has, of course, raised many questions on the state policy and functioning of empire, the answers to which mostly lie in Chanakya’s Arthashastra – his handbook on the successful direction of a state.

Despite his works being written in the 4th century BC, the Arthashastra was rediscovered only in 1905 by Professor R. Shamasastry after centuries of oblivion. The Arthashastra, which is often translated to “science of polity,” is in fact much more in its scope. Considered the most comprehensive account of economic principles, ideologies, and thought, it provided an important precursor to classical economics. Regrettably, for the development of ancient economic thought, Chanakya’s ideas were unknown to Renaissance philosophers and thinkers who are largely credited for the creation of modern economic thought.

As the text abounds in generalities, Chanakya seeks to make his ideas relevant across situations and eras. Discussing the efficient management of a state holistically, the text enumerates his economic, political and military strategies. All of these ideologies outlined by Chanakya is ultimately aimed at creating the greatest state. He believed the king must do what was beneficial for the kingdom and aim to increase prosperity, ensure judicial fairness, provide national security, and afford well-being. In this way, it was also the King’s responsibility to subvert and conquer its neighbours in ripe conditions, in order to continue towards world-wide subjugation. This was, of course, dependent on the strength of their enemies and their ability to raise relatively stronger and more successful armies, thus making wealth the key.

In this context, an analysis of the ancient economic thought of Chanakya highlights his three central economic debates that he considered pivotal in administering a vast empire. These were, namely, public finance or taxation, international trade, and labour management. Studying these show that Chanakya’s prescriptions in the Arthashastra remain applicable to the contemporary social order even today.

Public Finance

Chanakya very explicitly lays down a set of “principles of taxation” in this work, recognizing that a prerequisite for a prosperous kingdom was to have a well-developed system of income for the King’s treasury. Firstly, looking to the welfare of the people, Chanakya favoured revenue received through the participation of the state in industries over that of levied taxes, as it brought employment along with revenue. This idea of achieving prosperity through welfare is akin to modern socialism and Keynesian thought. Alongside this, he divided tax income into those levied on commodities produced locally, and those imposed on export and import goods. While the modern criterion defines tax as a compulsory levy imposed by the State, Chanakya’s rajkar was collected cautiously, and most often utilized only for purposes of societal development and defence. The King, as the largest landowner of the kingdom, had enormous pools of private wealth. This private wealth was used for the upkeep of a large portion of the state apparatus, thus limiting heads of public expenditure. With fewer things to spend on in comparison to a present-day government, the rajkar was, in essence, meant only to function as remuneration for the services that the King rendered, like the provision of internal security to his subjects.

With public welfare in mind, Chanakya had a certain ideal for any tax system. He wanted it to embody ease of payment and calculation, fairness and justness in its burden, and for it to allow the advancement of economic development. Keeping this in mind, most taxes could be paid in gold, silver or copper coins, or even in kind. Accordingly, these taxes were to be extracted only when the citizens had the capacity to pay. In other words, a graduated tax rate system were employed based on occupational structure, resemblant of the progressive tax systems that today’s nations employ.

Furthermore, taxes were not to be raised to an extent that led to the destruction of the citizen’s economic incentives to participate in the economy, which would lead to a decrease in the wealth of the empire. For example, Chanakya suggested tax holidays for agricultural labourers, and for any new land brought under cultivation the labourer was exempt from agricultural tax for at least two years. These acted as direct incentives to promote economic activity. In this way, he aimed at maximizing the state’s tax revenue by setting an optimum tax rate through an effective system of tax collection and public expenditure of this revenue. The relationship that Chanakya discusses between the income tax rate and the magnitude of tax revenue is now interestingly expressed in terms of the Laffer curve, developed by economist Arthur Laffer.

International Trade

Trade among kingdoms was a major vehicle for an upsurge in wealth, and thus, trade was seen as the second most essential source of revenue for a well-stocked treasury. As the King was expected to work for the benefit of the state and its people, foreign relations were guided by favourable trade conditions. Unlike the Mercantilist view, trade was approved only when a surplus was left over after meeting domestic needs, and imports were perceived as more significant than exports in gaining cheaper and domestically unavailable resources. In this way, he highlighted the gain foreseen through specialization and trade based on the principle of mutually-benefitting comparative advantage. David Ricardo’s trade theory is uncannily comparable with its formulation much later in 1817.

Chanakya recognized that there couldn’t exist a completely independent body or a nation that ensured the well-being of a nation without certain safeguards and policy measures. Hence, he emphasized that some form of control over trade and the market was necessary in the form of import and export duties. Tolls, duties, and customs had to be collected for revenue purposes. As with the proposed tax system, he accorded serious emphasis on incentives in the context of trade as well. Luxury items were taxed heavily, whereas minimal tax was applied to items of necessity. However, any item realised as highly beneficial for the kingdom was declared to be free from trade restrictions.

Labour Management

Chanakya philosophy on the labour theory of value draws along the kingdom’s guarantee of ensuring fairness and economic justice. Three factors influenced the market value of labour and the determination of “just” wages – skills associated with human capital, labour time expended, and labour productivity. He also recognized the impracticability of fixing a uniform wage rate (the benefits of which are being debated amongst leaders today), as it is impossible for the government to accurately evaluate and quantify various manufacturing skills. Wages cannot depend on the market value of goods but must reflect them instead, which largely depended on the costs of production. Hence, wage settlement was a complicated affair to be considered through the aforementioned three elements.  Moreover, Chanakya also deliberated on the concept of minimum living wages, the settlement of disputes between employers and workers, and also established a code of discipline for labour.

Given the complexity and evolved nature of his thoughts in the exhaustive Arthashastra, Chanakya is a predecessor of the long line of both Western classical and modern world thinkers. He is one of the first builders of theoretical frameworks like that of Smith and Ricardo on whose ideas today’s intricate global systems stand.

As our former National Security Advisor said in a seminar, “the study of the Arthashastra, an ancient Indian treatise on statecraft, economic policy and military strategy, is probably one of the most significant ways to understand our country’s strategic culture as we see it today.” In this context, the Arthashastra needs to be resurrected and brought into the academic mainstream as a foundational text. This compilation of politico-economic thoughts is a priceless and unparalleled inheritance and yet remains largely unexplored in the Indian academic arena itself.

India is today a thriving democracy and the sixth-largest economy in the world. The ideas and policies that have acted as stepping stones to bring us to this position trace a long way back. Keeping this in mind, can we give Chanakya his due?

By Padmini Prasad