1.
Some Insights from Arthashastra
Pulak Mishra
Department of Humanities and Social Sciences

2.
Basic Notions and Concepts
• Discussions on Economics in combination with Philosophy, Ethics and Politics
• Four means of production - land, labour, capital and organization with land as
the main source of wealth accumulation using labour
• Concept of demand and supply
• No arbitrary price fixing by the king in isolation of demand and supply
 Arbitrary price fixing in isolation of demand and supply - deviation from
equilibrium - may not maximize welfare
 Similar to the idea of invisible hand of Adam Smith
• Recognition of adverse impact of monopoly power – recommendation for
setting profit limit (allowance of 5 to 10 percent profit of operations)

3.
Economic Activities
• Major economic activities - agriculture, animal husbandry and trade
• Agriculture based economic landscape
• Knowledge of the king about the essentials of the national economy - crucial
to discharge functions successfully
• Emphasis on accumulation of wealth (metals, labour, forest produce, etc.)
• Agriculture and animal husbandry - basic sources of new wealth
• Importance of wealth for welfare (e.g., protecting people against famines)
• Responsibility of state and community for development of agriculture
• Valuation of land based on its fertility
• Wage regulation and settlement of disputes between employers and workers

4.
Role of the State
• Emphasis on role of the state in economic activities
• Idea of welfare state - state’s duty to look after the disadvantaged groups
• Involvement of the state in planning and implementation of policies,
revenue collection, judiciary, business activities, etc.
• Existence of state-controlled the production and distribution systems
• Participation of private businesses in manufacturing and selling
• Existence of both state owned and private businesses – possible conflicts –
parity in prices to resolve the conflicts
• State’s intervention in case of over production (to avoid price slash) –
similar to concept of price floor

5.
Tax Structure and Budget
• Taxation (rajkar) – major source of revenue (but with limited taxing power of the state)
• Equitable and justified tax structure with two broad principles of taxation:
(i) Levying once a year; (ii) Levying based on the ability to pay – not to make burdensome
• Major sources of tax revenue:
 Taxes on land, forests, property, customs and excise duties, fines, profits of state,
factories and crown monopolies
 Taxes on manufacture and sale of salt, intoxicants, trade in horses, fine wool,
elephants, road tolls, etc.
• Not heavy and excessive taxes -16-20 percent ( 1/6th or 1/5th ) of the economic activities
 Possible adverse impact of higher taxes on economic activities
 Possibility of tax evasion following higher tax rate
• High tax rate (up to 50 percent or more) for harmful goods or services - higher tax rate on
cigarettes, liquor, etc. in today’s context
• High tax rate on import of luxurious goods - to discourage their imports

6.
Tax Structure and Budget
• Concern about the expenditure side of the budget - surplus budget to avoid
crises - aggregate wage bill not exceeding one-fourth of the total revenue
• Major areas of public expenditure: public administration, defence, salaries of
ministers, government employees, maintenance of national store houses and
granaries, acquisition of valuable-ornaments, gems, precious stones, etc.
• Emphasis on protecting weak and aged; providing jobs to unemployed
• Emphasis on maintenance of sanitation and prevention of fire
• Depositing the surplus amount either with the treasury or the war chest
• Intelligence department and efficient audit to prevent economic offences

7.
Some Other Aspects
• Emphasis on international trade for economic prosperity
• Trading by the state in certain areas; regulation and development of trade
• Incentives to counter higher risks and uncertainties – recommendation for
higher rate of profit on imports vis-à-vis domestic goods (to incentivize
against robbery during shipments)
 Similar to the profit theory of Knight – profit is the reward of uncertainty
• Determination of rate of interest based on (i) risks involved and (ii)
productivity of capital (against state determined interest rates)
• Higher interest rate on loans for business vis-à-vis that for personal causes
• Exemptions from payments of interests on human considerations (inability
to pay, etc.) – similar to modern days borrowing and lending system