A popular legend has it that when Kautilya and Chandragupta attacked the Nanda Kingdom they were defeated at first. Wandering around the city of Pataliputra whingeing about their failure they came across a woman scolding her son for being just like Chandragupta Maurya. Weird, right? The fact was that he burnt his fingers by starting to eat food from the center of a hot vessel which is precisely what Chandragupta  Maurya did: he didn’t capture the neighboring villages and straight away positioned his entire army to attack the capital. Hence, defeat was inevitable. Learning lessons from this tale, let’s not delve directly into the crux of Arthashastra and begin by analyzing ‘artha’.

The Vedas, written between 1500 BCE and 1000 BCE mention- Dharma (morality), Artha(wealth), Kama (worldly pleasures) and Moksha(salvation) as the principal aims of human beings. Dharma is doing what is morally correct. The source of livelihood for mankind is Artha. Kama (worldly pleasures) presupposes the existence of Artha(wealth). Attainment of dharma, artha, and kama leads to the attainment of moksha.

Arthashastra provides subtle hints about the dharma of the king and interlinks it with Artha and Kama. The king’s dharma was to maintain a diversified economy thriving with economic activity-root of Artha(wealth generation) through maintenance of law and order, an efficient administrative machinery, a powerful army and a systematic foreign policy thereby enabling an increase in wealth of nation i.e, kosha(treasury) and ensuring the welfare of people. The Arthashastra –one of the world’s oldest treatises on the functioning of state and kingship-is exactly about the above phenomena. It is the science of artha(economics),dandniti(law and order) and rajniti(politics).

Well, nothing’s changed. The Arthashastra written by Kautilya( also known as Vishnugupta and Chanakya) is still as relevant as it was back then. The king is nothing but the ruler of a nation, constitution takes care of law and order, various levels of government form administrative machinery and kosha is the synonym for the macro concept of national income of the country. Also, we must appreciate that Kautilya isn’t the sole writer of The Arthashastra. He mentions five different schools of thought-Brihaspati, Ushanas, Prachetasa Manu, Parasara and Ambhi and renowned teachers like Vishalaksha and Bharadwaja -and his disagreement with their thoughts. We’ll be focussing more on the economic aspect of Arthashastra in this article.

To fully understand the economic structure we need to be thorough with social structure and the best way to experience the social structure is through travel and exploration (well time travel in this case).

So let’s send a tourist who happens to be a renowned economist and a champion of human rights of our time via a time machine to Kautilyan country (Mauryan empire) and experience Magadha of Mauryan Empire through his eyes.

As soon as Mr. tourist lands in Pataliputra (capital of Magadha) he realizes that the society was clearly divided into two groups- Aryas and Non-Aryas under the varna system. The varnas(subgroups )within Aryas were- Brahmins, Kshatriyas, Vaishyas, and Sudras. Brahmins were at the top of hierarchy followed by Kshatriyas(protectors of land), Vaishyas(merchants) and Sudras(agriculturists, artisans, craftsmen, and actors). The lower three varnas constituted the most productive labor force and Kautilya preferred giving them lands in the new settlements because of their productivity. Agriculture was the principal economic activity hence most of the sudras were engaged in agriculture. Also, Mr. Tourist was flabbergasted to know that the punishment for the same crime was decided in accordance with Varna. Lower the varna the more severe the punishment. The tourist, an advocate of human rights was agitated on discovering that Non-Aryas were treated as outcasts and slaves.

Mr. Tourist, disturbed by current world economic divide between rich and poor was hoping for equal distribution of wealth among people but was disappointed to know that there was a tremendous disparity in wealth between rich and poor (surprisingly, nothing has changed till now).

Now that we are aware of the social structure (thanks to Mr. Tourist’s observations) let’s move onto the economic structure that prevailed in the Kautilyan Economy.

Kautilya defines the wealth of state as the sum total of wealth in king’s treasury, income generated from economic activities in the economy and the monetary value of defense equipment and forest produce. The treasury should also include enough surplus wealth to withstand long wars and natural calamities. In a modern day context, the wealth of the nation in Arthashastra is similar to the macro concept of national income. Kautilya in Arthashastra advises the king to devote his best attention to the treasury because he was of the opinion that ‘From kosha (wealth) comes the power of the danda(government’s court)’

Being a meticulous acharya, Kautilya laid out the entire economic framework for the collection of revenue. He prescribes sources of revenue as Income from Crown Property, Income from state-controlled activities, Taxes-In Cash and In-Kind, Trade, Fees and Service Charges and Miscellaneous. He had in place a comprehensive framework of taxation policy which was non-exploitative and revenue generating. The tax policy distinguished between who had to pay tax and those who were exempted. Another interesting feature that Mr. Tourist noticed was the existence of transaction tax. Kautilya was well aware of the fact that people respond to incentives (one of the ten principles of economics), therefore he introduced tax exemptions as an incentive to increase the production of public goods.Tax exemptions were also provided to those who brought dry land into cultivation and built irrigation works.

Mirroring the current economic system of India, Kautilya believed in a mixed economy structure where the state had a monopoly on manufacture and sale of several goods like alcohol, gold, silver etc and regulated gambling, betting, and prostitution. Kautilya had designed the principal of fair trading to promote the welfare of people. His tendency to use the phrase ‘to be sold for benefit of people’ shows that he gave utmost priority to the welfare of people. To avoid exploitation of consumers, Kautilya had fixed profit margin on goods-5% on domestic goods and 10% on imported goods. Adding profit margin higher than those prescribed attracted a penalty of 200 pannas. The existence of Monopoly Tax further solidifies our claim that Kautilya followed mixed economy structure. Since our tourist is neither a superhero nor a ghost, he needs money to spend. Treasury adhyakshas (officials) inform him that the currency in circulation was Pana further subdivided into mashakas and kakani.

Kautilya introduced the concept of price support back then to protect the interest of farmers and laid the steps to be followed in case of unexpected market outcomes. In the case of a glut in the market the state shall maintain a buffer stock by buying it at a price higher than the market price (the current day MSP and buffer stock).

Another striking and debatable feature of The Arthashastra is the fact that Kautilya had fixed a higher profit margin for imported goods rather than domestic goods. He didn’t approve sanctions or restrictions on trade. To promote imports, tax exemptions were given to importers, foreign importers were exempted from being sued and a higher profit margin was permissible on imported goods. Mr. Tourist couldn’t help but think that: was ensuring the availability of goods to people the sole reason for this policy or was this done to maintain cordial relations with neighboring countries and avoid war? Kautilya mentions that his sole motive was the former but it does create apprehensions in the mind of readers.

Mr. Tourist coming from current so-called globalization age was shocked to discover this. It was the exact opposite of what is being currently practiced in the world. Won’t it be more beneficial for global trade if the current policymakers and political leaders follow the footsteps of Kautilya with respect to foreign policy? By this policy, won’t production skyrocket in every country? Trade wars would exist only in theory. Each country would produce goods in which they specialize in therefore ensuring availability of best quality goods at an affordable price to consumers around the world. In the current world economic scenario, where sanctions and trade restrictions are ubiquitous, Mr. Tourist found this remarkable policy all the more relevant.

Summing up our tour to the Mauryan Empire and my research, I believe that the current economic framework has somewhat evolved from the economic framework that Kautilya proposed. Taxation policy that exists in our current economic system was introduced by Kautilya centuries ago. Price controls that are exercised even today were in practice during 300-100 BC. The mixed economy system where the state owns some resources to ensure the welfare of people has developed and is still in practice in many countries including India. The role of the king has passed on to the ruler of a nation, the administrative machinery of entrusting adhyaksha with the responsibility of smooth functioning of state back then is still in place with, just that modern day adhyakshas are government officials and civil servants. Just like the evolution of humans, economics has evolved according to the needs of the ever-changing world.

Arthashastra written by Kautilya between 200BC- 300BC still continues to be relevant in the context of the current world economy. Who would have thought back then that this classic masterpiece will continue to guide future generations and help them in making better decisions?

The reason I decided to undertake research on The Arthashastra is that I had never heard of any economist before Adam Smith. I couldn’t digest the fact that economics wasn’t studied as a discipline before him.And the very answer to this indigestible fact lied in The Arthashastra. When the world was struggling to make ends meet, Kautilya had already taught state on how to function and people on how to lead their lives. It is imperative that we look back to find better solutions to economic problems that our current generation faces and continue to grow by learning lessons from our ancestors which they have left in the form of books, monuments, tales etc. In the process, we will be creating a better future for our descendants.

And trust me the future would be beyond our expectations!


By Sushant Sohey


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