Kautilya’s Arthashastra in Indian Economy

When considering Indian philosophical legacy, “Arthashastra” takes center stage. In his 1919 article “Politics as a Vocation,” Max Weber designated Arthashastra as a classic work of statecraft (Liebig, 2013). Arthashastra is thought to have been composed in the third century BC by Indian philosopher Kautilya (Chanakya), principal counselor to the Indian monarch Chandragupta. Political philosophy and theory, government, public administration, economics, law, diplomacy and foreign policy, intelligence, and military affairs are all covered in Arthashastra. They have been documented in 15 ‘Books.’ It is a theoretical and normative treatise on statecraft, according to Liebig (2013).

According to Liebig (2013), it is a theoretical and normative work on statecraft. Two of the most important concepts explained in Arthashastra are seven power factors (Prakriti) and six foreign policy approaches (shadgunya).

PrakritiShadgunya
swamin, the rulersamdhi, peace
amatya, the ministervigraha, war
janapada, the peopleasana, neutrality
durga, the fortressyana, war preparation, coercive diplomacy
kosa, the treasurysamshraya, alliance building
danda, executive powerdvaidhibhava, diplomatic double game
mitra, allied state

The economy was given a prominent position in Arthashastra. According to Kautilya, a solid economic foundation is required for a safe nation. He advocated for boosting agricultural efficiency, raising tax income through trade, and developing infrastructure to enable commerce.

Contribution of Arthashastra to Economics

The following are some of the most influential economic philosophies of Kautilya’s Arthashastra.

Concept of welfare state and Good governance

It is important to note that human welfare is the foundation of Arthashastra (Tanwar, 2014). As mentioned in the Arthashastra maintaining welfare and happiness are necessary for keeping a stable state. Therefore, it is the ruler’s duty to ensure it by taking care of his citizens. As said by Kautilya, “perfect ruler is the one who is ever active in promoting the welfare of the people and who endears himself by enriching the public and doing good to them”. Furthermore, Arthashastra identifies the importance of good governance for a nation. The state should stop taking extreme decisions and actions and for that properly organized and guided administrative procedures should be established.

Foreign Trade

As mentioned in Arthashastra, foreign trade is a critical source of increasing state wealth because trade taxes are the primary source of income for the treasury; thus, it should be encouraged by offering incentives. Kautilya’s approach to international commerce is similar to the comparative advantage theory. For a lower price, a state should import products that are not produced domestically. It is advantageous since imports are less expensive than those available domestically. Furthermore, Kautilya argued for the use of tariffs and taxes. He emphasized the need of levying high taxes on luxury items while levying lower taxes on everyday items.

Taxation

Kautilya emphasizes the necessity of taxation and criticizes the excessive tax load on people. A monarch should collect taxes in the same way as honey bees gather nectar from blossoms without harming them, according to Arthashastra. To boost tax revenue, the tax base should be enlarged rather than the tax rate. Furthermore, Arthashastra emphasized the need for tax system stability, tax compliance, and encouraging subsidies and tax vacations to stimulate capital development.

Growth oriented public expenditure

According to the Arthashastra, tax revenue should be used to fund productive activities and public welfare. Furthermore, the state should spend on developing infrastructure, particularly roads, because they play an essential role in boosting commercial activity.

Kautilya’s Arthashastra in Present Indian Economic development

It is crucial to analyze the role of Arthashastra in current Indian economic growth. According to Bhatia (2016), Kautilya’s Arthashastra influenced the policies of Jawaharlal Nehru, Indira Gandhi, Atal Bihari Vajpayee, Manmohan Singh, and Narendra Modi.

When India’s first Prime Minister, Jawaharlal Nehru, was imprisoned, he read and studied Arthashastra. Nehru provided a summary of Arthashastra and explained Kautilya’s perspective of the monarch as a servant to the people rather than an authoritarian in his 18th letter to his daughter. Nehru goes on to describe ‘Chandragupta and Chanakya: The Maurya Empire Established’ in his book “The Discovery of India.” He admired Kautilya’s emphasis on people’s welfare through public infrastructure, health policy, consumer protection, social aid for the poor, disaster management, and urban planning (Liebig, 2013).

Jawaharlal Nehru

During his administration, Nehru set the groundwork for increasing India’s state capacity through economic and technical growth. According to Liebig (2013), Kautilya’s impact on Nehru is apparent in this policy to strategic economic prioritizing.


In his book “Amit Shah and the March of the BJP,” Shah claims that Indian Prime Minister Narendra Modi’s policies are influenced by Kautilya’s Arthashastra (Pandey and Arnimesh, 2019 August 08). According to Shah Modi, he referred to himself as “Pradhan Sevak,” or “Prime Minister.” This is consistent with Arthshastra’s interpretation of the monarch as a servant of the public and the nation. Moreover, Shah quoted Modi’s following statement. “We should have a policy which envisions welfare for all. Everyone should have a role in development too.” According to the Shah, this phrase is again more similar to Kautilya’s idea on the welfare state.

Narendra Modi

However, Arthashastra’s inspiration for other politicians has not been investigated in the literature. However, that does not deny the influence. One clear evidence for the influence can be quoted from Pranab Mukherjee’s Union budget speech in 2011. ‘While formulating them [tax proposals], I have been guided by the principles of sound tax administration as embodied in the work of Kautilya’ (Liebig, 2013). According to scholars even though the name Arthashastra has rarely been mentioned it has largely influenced the political and strategic culture of India [(Zaman, 2006)(Kim 2004)]. However, this is not clearly visible.

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