Economic Ideas of Kautilya (With Critical Estimate)

The following points highlight the top ten economic ideas of Kautilya. The economic ideas are: 1. Wealth 2. Varta 3. Agriculture and Animal Husbandry 4. Labour 5. Trade 6. Value 7. Population 8. Slavery 9. Welfare State 10. Public Finance 11. Town Planning and Social Security 12. Private Property  13. Justification on Interest 14. Consumption and Production.

Economic Idea # 1. Wealth:

The concept of wealth as held by Kautilya was very wide in its scope. 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.

He also included labour and forest produce in wealth. To him, “wealth is to be acquired grain by grain, as learning is to be acquired every moment.Acquisition of wealth is always beneficial if it is acquired for the sake of a good wife, a son or a friend, or for giving away charity”.

Thus Kautilya justified wealth which was earned through proper means, and also he thought that accumulation of wealth was a safe method for protecting the people against famines.

Economic Idea # 2. Varta:

Ancient thinkers used the word Varta to mean the science of national economy. Kautilya included agriculture, animal husbandry and trade in Varta. According to Mahabharata, Varta was the roof of the world, a thing which was most essential for economic stability. It was necessary for the King to learn about the essentials of national economy from scholars and specialists in order to discharge his functions successfully as a ruler.

Economic Idea # 3. Agriculture and Animal Husbandry:

Agriculture and Animal Husbandry formed the important components of Varta. These were regarded as the basic sources of new wealth. Agriculture was given the pride of place among the occupations adopted by the people.

Shukracharya was of the firm belief that by birth nobody was a Brahmin or Kshatriya or Shudra. It was on the basis of their occupation that they are distinguished from one another. Agriculture occupies a place of first stage importance in Kautilya’s Arthashastra.

The art of agriculture reached a high degree of perfection and our ancient scholars well understood the minutest details of agricultural techniques. They have mentioned in their books, 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. To them the largest source of State income was land revenue.

In those days the state and the community were responsible for the development of agriculture for which the waste lands were to be cleared. The value of the land was determined on the basis of its fertility. The fair prices of agricultural produce were fixed by the state to save cultivators from the clutches of traders.

Economic Idea # 4. Labour:

The ancient sages appreciated the dignity of labour for 100 years. Manu and Kautilya have dealt with the methods for the regulation of wages and for the settlement of disputes between employers and workers. Kautilya did not recommend slave labour. But hired labour was there. Kautilya had laid down a code of labour discipline. For instance, he suggested that a wage worker 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.

Economic Idea # 5. 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. Kautilya advised the state to build rest houses and store houses for the caravans of traders for whom police escorts were recommended. Also trade was approved only when the supplies of commodities were left over after satisfying local needs.

Economic Idea # 6. Value:

Regarding value, the ancient thinkers of India seemed to have some ideas on value which are relevant to modern times. We should take the value of each commodity according to time and place but there can be no value (price) of that which is incapable of being exchanged. Again whatever one pays for obtaining a thing must be taken to be the cost. The value is determined by the easiness, or otherwise of obtaining, and also by the inherent utility of it (Shukracharya).

Economic Idea # 7. Population:

The ancient thinkers had no fear of growing population. The Vedas were for more married couple. Population could not grow beyond a reasonable limit owing to the high death rate due to constant wars between small states and loss of life due to the inadequate medical facilities. Kautilya recommended that the king should establish colonies for facilitating immigration.

Economic Idea # 8. Slavery:

In Ancient India, a slave was treated as a member of family, and was not asked to do a degrading work. A slave was a hereditary domestic servant who could not use his personal earnings and could not own property. But economically he was better than a hired labourer. Slaves could not be employed by Buddhist monks. In ancient India all slaves were as good as others and hence Megasthenes wrote that slavery was unknown in ancient India.

Economic Idea # 9. Welfare State:

The ancient Indian writers had a clear idea of the welfare state. According to Shukracharya, the state is a tree of which the king is the root and the counselors are the main branches, the commanders are the lesser branches, the armies are blossoms and flowers, the people are the fruits and the land is the seed”. The same idea has been echoed by Kautilya, “In the happiness of his (king’s) subjects lies his happiness, in their welfare, his welfare”.

To Kautilya, the state was to promote the economic welfare of the people and fully regulate its economic life. The state had to give subsidies for the development of trade; agriculture/ irrigation, mines, cattle welfare etc.

Economic Functions of 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. Secondly, the activities related to farming, spinning and weaving, arts and crafts should be left to the individuals and the right of the ownership should be recognised.

Finally, the state should see that the activities relating to production, distribution and consumption are carried out efficiently and in accordance with the rules framed by it. The duties of men, women, saints and sages, lords and the kings used to be clearly defined so that their observance may help in achieving the objective.

The private people can also undertake the production of goods under the supervision of the State. In addition to the above function, the State regulated the wages and working condition of workers, and helped the farmers in times of calamities.

Economic Idea # 10. Public Finance:

Taxation was one of the most important sources of revenue of the state. It was known as ‘rajkar’. The rate of tax was determined in accordance with the dictates of Hindu religion. Land Revenue was an important source of taxation in ancient India.

The early writers have described the features of a good tax system. “The tax system should be such as not to prove a great burden to the public. The king should act like the bee which collects honey without inconveniencing the plant”. 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.

The usual import tax was 20 per cent 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 which were harmful for the welfare of the State. Kautilya suggested an-efficient machinery for audit.

Two principals were followed in connection with the realisation of taxes:

(i) A tax should be levied once a year, and should not prove burdensome and

(ii) Taxes should be levied according to the ability to pay.

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.

Similarly public expenditure included public administration, defence, salaries of ministers, Government departments, maintenance of national store houses and granaries and acquisition of valuable-ornaments, gems and precious stones. Whatever amount was left unused, was deposited either with the treasury or the war chest.

Economic Idea # 11. Town Planning and Social Security:

Town planning included the re-orientation of main roads and streets and the subdivision of city areas. The villages were grouped together from the point of view of economic necessities and for national defence. The metropolitan city was established after a detailed and careful planning, and due emphasis was laid on the maintenance of sanitation and prevention of fire. Kautilya believed that it was the prime duty of the state to set up charitable institutions and poor houses. Further, the state should protect the weak and the aged, to provide jobs to the unemployed.

Economic Idea # 12. Private Property:

Ancient economic thinkers supported the institution of private property, both movable and immovable. The right in land was transferable and saleable. As revealed by ancient law books, the following eight sources of property were recognised in those days—gift, conquest, inheritance, partition, purchase, gain of agriculture and trade, discovery and seizure. The owner of land on which a treasure was discovered, could get the large share of it, not the whole of it.

Economic Idea # 13. Justification on Interest:

Though interest was justified in ancient India, no interest was allowed on the mortgaged property. The rate of interest was also varied from class to class depending upon the purpose for which money was borrowed, economic resources of the borrower etc. The same were the considerations for charging compound rate of interest. Thus, interest in those days was part of profit. If a loan made in kind or money was to be returned in kind, interest did not exceed half of the money value of the original capital.

Economic Idea # 14. Consumption and 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.

The importance of labour was also duly recognised. “An employer not-taking work from his labourer, or an employee not doing his employer’s work, should be fined”. The ancient writers believed that the accumulated wealth, earned through hard labour was sufficient for a man’s life. The high rate of interest prevailed in the economy was due to shortage of private capital. So the state was asked to provide cash and kind to the farmers and cash to the industrialists.

Critical Estimate of Economic Ideas by Kautilya:

The ancient thinkers did not regard economics as a separate discipline. The study of economics was combined with the study of religion, ethics, philosophy, law, politics and public administration. According to Kautilya, the study of four sciences namely, philosophy, ethics, economics and politics was combined together and was essential for the salvation of individual. The economic teaching emphasised a moral life.

Secondly, the concept of welfare state was the kernal of the ancient Indian economic thought. The state was responsible for the economic prosperity of the people.

Finally, economic life as well as thought in ancient India was governed by moral sanctions and religious ideals. The social equilibrium was maintained by the system of ‘Varna ashram’ a system of mutual checks and balances emphasizing the virtues of hard work.