Kautilya's Arthashastra

About The Book

Kautilya, also known as Chanakya, is India's most illustrious political economist of all time. He regarded economic activity as the driving force behind the functioning of any political dispensation. In fact, he went to the extent of saying that revenue should take priority over the army because sustaining the army was possible out of a well-managed revenue system.

Kautilya advocated limiting the taxation power of the State, having low rates of taxation, maintaining a gradual increase in taxation and most importantly devising a tax structure that ensured compliance. He strongly encouraged foreign trade, basing it on the premise that for a successful trade contract to be established, it had to be beneficial to all. He emphasised State control and investment in land, water and mining.

Kautilya was a true statesman who bridged the gap between experience and vision. For Kautilya, good governance was paramount. He suggested built-in checks and balances in systems and procedures for the containment of malpractices. Many postulates of Kautilya's philosophy of political economy are applicable to contemporary times.

A Brief Outline

Kautilya belonged to the Magadh State, which corresponds to present day South Bihar. Magadh was then the biggest state in India. Kautilya studied at one of the world's oldest universities, Takshasila University. He joined Chandragupta Maurya's empire, after a brief stint with the previous Nanda Dynasty. He served as the Mahaamatya, in the Mauryan empire, a post similar to the present day Prime Minister and, thus, possessed rich experience in political administraion and defence matters. Eventually, Kautilya became an intelligent scholar, fearless thinker, capable secretary, and astute politician.

Vishnugupt's (better known as Kautilya, or Chanakya) (c. 350-c. 275 BC) treatise Arthashastra deals extensively with aspects of political, economic, and social management and is the oldest book on management in the world. It was written by Kautilya around 350 BC. When literally translated, it means 'Scripture of Wealth'.

Kautilya was credited with bringing down the Nanda Dynasty and influencing the defeat of Alexander in India when the warrior was on his way to conquer the world. As a political thinker, he was the first to visualise the concept of a 'nation' for the first time in human history. During his time, India was spilt into various kingdoms. He brought all of them together under one 'Central Governance', thus creating a nation called 'Aryavartha', which later became India.

Kautilya's Arthashastra is an important source of knowledge on polity, economy and administration. However, this important document had been forgotten for centuries. Thanks to Syamasastri, who first interpreted Kautilya's economic and political thoughts in a book published in English in 1909, we had insights into the writings of that brilliant mind.

Though the general impression is that Kautilya had not written much about economics, the fact is that Kautilya by taking a holistic and integrated approach to governance, had provided a new dimension to the field of economics, which unfortunately has remained neglected all this time. Economics works well with resource management, efficient administration, a fair judicial system, knowledgeable people with integrity, capable of taking up high positions.

Kautilya's philosophy is based on the principles of "sam, dam, dand, bhed" (persuasion, temptation, punishment, and division) as various, different, and sequential means to achieve an end.

Governance - Role Of Ethics

Kautilya used the word 'dharma' (which in general, means 'duty') and righteousness in personal and social conduct. He described the basic ethical (dharmic) values as, "Duties common to all - ahimsa (abstaining from injury to all living creatures); satyam (truthfulness); cleanliness; freedom from malice; compassion and tolerance."

Interest

Five different kinds of interest were distinguished by Kautilya: compound interest, periodical interest, stipulated interest, daily interest, and the use of a pledged article.

Indeed the idea of expressing interest as a percentage originated in India.

Wages

He recommended that the aggregate wage bill of the State should not exceed one-fourth of its revenue.

Prevention of Unfair Trade Practices

Kautilya's policies, when seen in totality, represent a very pro-merchant and artisan stance, with the State playing the role of facilitator and protector of commercial interests.

Conceptualising Good Governance

The Arthashastra equates political governance with economic governance. The end is economic governance while political governance is the means. But as economic objectives are not realised in the absence of political ones, then political governance becomes an end and economic governance the means. 'The end justifies the means', this is supposed to be the basis of Kautilyan and Machiavellian philosophy. Political power and material wealth according to Kautilya are the means and ends of governance. And good governance - political or economic - depends upon justifying the ends and means as the socio, economic and political conditions.

The three constituents of power are: intellectual power, military might, and enthusiasm and morale.

Principles of Economic Administration

The cardinal principle of economic administration was laid down in Kautilya's Arthshastra in the following words - "The root of wealth is economic activity and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. The King shall populate the countryside by creating new villages on virgin lands or reviving abandoned village sites."

Profit Margins

Arthashastra indicated the profit margin allowed to merchants as:

1-5% for locally produced goods, and

2-10% for imported goods

Principles of Taxation

Kautilya's discussion of taxation has several underlying principles - the taxing power of the state should be limited, tax should not be felt to be heavy or excessive, tax hikes should be introduced gradually, tax should be levied in the proper place, time and form, and tax level should be equitable and reasonable.

Ideally, the government should collect taxes like a honeybee that sucks just the right amount of honey from the flower so that both can survive.

Kautilya's scheme of taxation involved the elements of sacrifice by the taxpayer, direct benefit to the taxpayers, redistribution of income (the state took care of the poor), and tax incentives for desired investments.

Winning over Seducible and Non-Seducible parties in enemy territory

There were four types of behaviour that he felt made a man seducible -

anger, fear, greed, and pride.

Many of Kautilya's teachings and policies were influenced by the Vedas, which tell us that a human being is made up of mind, body, and intellect (brain). Of these, the body acts either at the command of the mind or at the insistence of the intellect. Intellect is defined as the capacity to control the mind and this comes from study and reflection. The mind is a collection of our feelings, emotions, thoughts etc. While intellect rationalises, the mind dictates the emotion. Further, the mind is insatiable, it wanders (perhaps even faster than the speed of light), and it gets attached. All these things make one dependent on the world.

A person feels stress when his mind rules over his intellect. This is the state of unfulfilled desires. Whereas when intellect rules over the mind, the desires become aims and ambitions. Unfulfilled desires could lead one to anger (the mind experiences this as an obstruction to what one desires); greed (when the craving or the desire becomes very strong); this leads to arrogance, which with the passage of time becomes envy. Envy leads to fear (losing what one has). The fourth state that the Vedas talk about is Moha (delusion); but Kautilya lays stress on pride in a man that relates to arrogance as the fourth seducible element.

Education

Kautilya's Arthashastra identified the significance of training and learning. It clearly stated that training imparted discipline. Thus, the lessons of discipline could be imparted to those whose intellect had the desire to learn, capacity to listen attentively, power to grasp what was taught, to retain it in memory, discriminate between the important and the unimportant, draw inferences, deliberate and imbibe the truth and not to others.

From hearing (sruti) ensues knowledge; from knowledge, application (yoga) is possible; and from application, self-possession (atmavatta) is possible. This is what is meant by efficiency of learning (vidhyasamarthyam).

Kautilya stated that investment in human capital especially in higher education would have a greater impact on the growth and development of the economy.

Towards Higher Sustainable Economic Growth With People Welfare

Good governance in Kautilya's literature is aimed at fulfilling the welfare of the people. "In the happiness of the King's subjects lies his happiness, in their welfare, his welfare. Whatever pleases him personally, he shall not consider as good, but whatever makes his subjects happy, he shall consider good."

The jargon related to Human Resource Management was not prevalent then, but its essence was widely practised in Kautilya's times. "The King should look to the bodily comforts of his servants by providing such emoluments as can infuse in them the spirit of enthusiasm to work. He should not violate the course of righteousness and wealth. Thus, he shall not only maintain his servants, but also increase their subsistence and wages in consideration of their learning and work."

Kautilya said that good governance and stability go hand in hand. According to him, there is stability if rulers are responsive, responsible, accountable, removable, and recallable, otherwise there would be instability.

Rulers: Duties and Qualities

A ruler who administers justice on the basis of four principles: righteousness, evidence, history of the case, and the prevalent law, shall conquer the earth.

Military Policy

In day time, the crow kills the owl. At night the owl kills the crow (The time of fight is important).

In the fight between the dog and the pig, the ultimate victory is that of the pariah (who gets the meat to eat).

A dog on land drags a crocodile. A crocodile in water drags a dog (the place of fight is important).

Law, Justice, Punishment

When there is a conflict between established tradition and ethical principles, or between evidence and what is right (according to ethical principles) the case shall be decided on the basis of ethical principles.

Where scriptural laws conflict with what is righteous and just, there justice shall be the valid criterion, the written text loses its relevance.

Agriculture

Agriculture is the most important constituent of the economy.

Three principal vocations are recognised as providing men with the means of livelihood namely, krsi (agriculture), pasupalya (cattle rearing) and vanijya (trade). The three together constitute varita (derived vritti,-livelihood).

Where rain, free from wind and unmingled with sunshine, falls so as to render turns of ploughing possible, there the reaping of good harvest is certain.

With respect to taxes on agriculture, avoid extremes of either complete absence of taxes or exorbitant taxation.

Miscellaneous Dicta

Time (opportunity) approaches a man desirous of it only once. And will not come a second time when he wants to do his work.

Society undergoes constant change, leaving behind those who say 'no' to change.