Vol.1 No.1 July - December 2013 ISSN: 2321 - 6530


Triloki Nath Tiwary
Faculty of Economics, North Point 10+2 School
Mithanpura, Muzaffarpur, Mob.No.-09162710625
E-mail: tnt4ujsr@gmail.com

Chanakya, known as Kautilya, was an Indian teacher, philosopher and royal adviser. As a political thinker, he was the first to visualize the concept of ‘nation’ for the first time in human history. During his time, India was split into various kingdoms. He brought all of them together under one ‘Central Governance’, thus creating a nation called ‘Aryavartha’, which later became India. He authored the ancient Indian Political treatise called Arthshashtra. He is considered as the pioneer of the field of Economics and Political science in India, and his work is thought of as an important precursor to Classical Economics. He is often called the ‘Indian Machiavelli’

Different scholars have translated the Arthshashtra in different ways:—

  1. R.P.Kangle:-”Science of Politics”, a treatise to help a king in ‘the acquisition and protection of the earth.’
  2. A.L.Basham:-a “Treatise on polity”.
  3. D.D.Kaushambi:-”Science of material gain”.
  4. G.P.Singh:-”Science of polity”.
  5. Roger Boesche:- “Science of political economy”. (It is better than all above definitions. It reveals the concept of Welfare Economics.)

The Arthshashtra argues how in an autocracy (it is also applicable in (Democracy) an efficient and solid economy can be managed. It discusses the ethics of economics and the duties and obligations of the king. The scope of Arthshashtra is, however, far wider than statecraft, and it offers an outline of the entire legal and bureaucratic framework for administering a kingdom, with a wealth of descriptive cultural detail on topics such as mineralogy, mining and metals, agriculture, animal husbandry, medicine and the use of welfare. The Arthshashtra also focuses on issues of welfare (for instance, redistribution of wealth during a famine) and the collective ethics that hold a society together. Because of its harsh political pragmatism, the Arthshatra has often been compared to Machiavelli’s The Price. Kautilya advocates what is now known as land reform, and elsewhere ensures the protection of the chastity of female servants or prisoners. Significant portions of the book also cover the role of dharma, welfare of a kingdom’s subjects and alleviating hardship in times of natural disaster, such as famine.

Arthshashtra is divided into 15 books in which these are related to Finance:

  1. Concerning Discipline.
  2. The Duties of Government Superintendents.
  3. The Conduct of Courtiers.
  4. Relating to War.
  5. The Conduct of Corporation.
  6. The Plan of a Treatise.
  7. Concerning Laws.

“It is the duty of the King to keep the Economy in order”; proclaimed Kautilya, the world’s first economist, 2,400 years ago. He declared that Artha and Danda a solid treasury and strong law and order, are the necessary foundations of a strong state. Kautilya’s Arthshashtra was a ‘blueprint of policies’ and ‘structures of government’ on which Chandragupta Maurya and his grandson Ashoka built an empire the size of which exceeded the dominions of modern India.

A major portion of Arthshashtra is devoted to financial matters including financial administration. According to the famous statesman, the Mauryan system, so far as it applied to agriculture, was a sort of state landlordism and the collection of land revenue formed an important source of revenue. The state not only collected a part of the agricultural product which was normally 1/6th of the total quantity, but also levied water rates, octroi duties, tolls, and custom duties. Taxes were also collected on forest products as well as from mining of metals and other related manufacturings.

Collection of income tax was well organized and it constituted a major part of the revenue of the State. General sales-tax was also levied on sales, and the sale and purchase of buildings was also subject to tax. Even gambling operations were centralized and tax was collected. A tax called Yatrawetna was levied on pilgrims. Though revenues were collected from all possible sources, the underlying philosophy was not to exploit or over-tax people, but to provide them as well as to the State and the King, immunity from external and internal danger. The revenues collected in this manner were spent on social services such as lying of roads, setting up educational institutions and new villages and other such activities beneficial to the community.

Kautilya gave so much importance to public finance and the taxation system in the Arthshashtra. According to him, the power of the government depended upon the strength of its treasury. He stated: “From the treasury, comes the power of the government, and the earth whose ornament is the treasury, is acquired by means of the treasury and army.” However, he regarded revenue and taxes as the earnings of the Sovereign, for the services which were to be rendered by him to the people, and to afford them protection and to maintain law and order. Kautilya emphasized that the King was only a trustee of the land and his duty was to protect it and to make it more and more productive so that land revenue could be collected as a principal source of income for the State. According to him, tax was not a compulsory contribution to be made by the subject to the State, but the relationship was based on dharma, and it was the King’s sacred duty to protect the citizens in view of the tax collected. If the King failed in his duty, the subject had the right to stop paying taxes, and even to demand refund of the taxes paid. It is remarkable that current day tax system is in many ways similar to the system of taxation which was in vogue about 2400 years ago. According to the Arthshashtra, each tax was specific and there was no scope for arbitrariness. The land revenue was fixed at 1/6th share of the production and import and export were determined on ad-valorem basis. The import duties on foreign goods were roughly 20% of their value. Similarly, tolls, road cess, ferry charges, and other levies were all fixed. Kautilya’s concept of taxation is more or less akin to the modern system of taxation. His overall emphasis was on equity and justice— the affluent had to pay higher taxes as compared to the not-so-fortunate. Students, people suffering from diseases, or minors were exempted from tax, or given suitable remissions. The revenue collectors maintained updated records of collection and exemptions. The total revenue of the State was collected from a large number of sources.

Kautilya placed land revenue and taxes on commerce under the head of the ‘tax revenues’. These were fixed taxes and included half-yearly taxes like Bhadra, Padika and Vasantika. Custom duties and duties on sales, taxes on trade and professions, and direct taxes comprised the taxes on commerce. The non-tax revenues consisted of production of sown lands, profits accruing from the manufacture of oil, sugarcane and beverage by the State, and other transactions carried on by the State.

Kautilya also laid down that during war or emergencies like famine or floods, etc., the taxation system should be made more stringent and the King could also raise war loans. The land revenue could be raised from 1/6th to 1/4th during emergencies. The people engaged in commerce were required to pay big donations to war efforts.

Taking an overall view, it can be said that Kautilya’s Arthashashtra was the first authoritative text on public finance, administration and the fiscal laws of this country. His concept of tax revenue and non-tax revenue was a unique contribution to tax administration. It was he who gave tax revenues due importance in the running of the State and pointed out its far-reaching contribution to the prosperity and stability of the Empire. It is truly a unique treatise. It lays down in precise terms the art of statecraft including economic and financial administration.

Kautilya says:

“Prajasukhe sukham rajah, prajahnam ca bite hitam,
Natampriyam hitam rajah, prajanaam tu priyam hitam”

It means, in the happiness of his (King’s) subjects lies his (King) happiness, in their welfare, his welfare. Kautilya stated that the King should rule his State and take care of his subjects and also look after the overall development of the society, similarly, today a company’s board of directors acts on behalf of the shareholders and safeguards their best interest at all times. Even though, the responsibility of managing the company’s affairs is left in the hands of the executive officers, it is the board of directors who oversees and monitors the work on a regular basis. This very concept of ‘agency theory’ can be charted back to Kautilya’s times.

Kautilya realized that wealth creation was crucial for establishing a welfare state. He outlined and advocated appropriate strategies for creation, protection and conservation of a nation’s wealth. Apart from all these specific issues, Kautilya’s Arthashashtra may be treated as the quintessence of the art of good governance.


  • Maira, Arun ( 2012 ). Arthshashtra Meets Democracy, The Economic Times/Kolkata/Monday/10-12-2012
  • Haribhakti, Shailesh (2009). Kautilya’s Arthashshtra: The Way of Financial Management and Economic Governance, JAICO Publishing House. Mumbai. ISBN 978-81-8495-029-8
  • Subramanian, V.K. (2012). Maxims of Chanakya: Kautilya, Abhinav Publications. pp. 1–. ISBN 978-0-8364-0616-0.
  • Bibliotheca Indica (1891). Volume 96, Issue 5. Asiatic Society (Calcutta, India). Baptist Mission Press.
  • Kapoor, Subodh (2012). The Indian Encyclopaedia, Cosmo Publications. Page 1372. ISBN 978-81-7755-257- 7.

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