Chanced upon an interesting piece by Stephen Knapp. I'm not sure who he is, or how authentic this material is (his citation of the social contract is absolutely authentic), but it provides a good lead into the underlying concepts of Dharma. 

Purposes of the state

a) FREEDOM

“The best king is one whose subjects live in freedom and happiness as they do in their father’s house. Peace will be theirs, and contentment. There will then be no wickedness, no pretense, no dishonesty and no envy.

b) DEFENCE, POLICE, JUSTICE

“Having thus arranged all the affairs (of) his (government), he shall zealously and carefully protect his subjects. That (monarch) whose subjects are carried off by robbers (Dasyu) from his kingdom, while they loudly call (for help), and he and his servants are quietly looking on, is a dead and not a living (king). The highest duty of a Kshtriya is to protect his subjects, for the king who enjoys the rewards is bound to (discharge that) duty. (Manu-samhita 8.142-144)

“A king should protect his subjects just as a pregnant women nurtures the foetus in her womb.” (Mb.12.56.44) In this way, as a pregnant woman sacrifices her own interests for the sake of the child in her womb, so also a king should be able to give up his own interests to address the needs of the citizens.

“Just as a father helps his son rise over a crisis, so also a king should deliver his subjects from difficulties.” (Bhagavata Purana 11.17.45)

“Punishing evildoers, honoring the righteous, enriching the treasury lawfully, deciding the cases of petitioners, and protecting the nation are the five sacrificial fires (yajnas) or spiritual duties of a king.” (Atrismruti 28)

“The very core of a king’s duty is the protection of his subjects and their happiness. It is not easy. To secure the happiness of his people he should use diverse methods.”

“A king who does not annihilate his enemy will not gain fame on this earth, will not acquire wealth and his subjects too will remain insecure. Even Indra was accorded the status of Mahendra after he slew the demon Vritrasua.” (Mb.12.15.15)

Sri Krishna to Yudhisthira explains: “O Dharmaraja, vanquisher of enemies, so long as you continue to reconcile with them (the enemies of the Kauravas) they will continue to rule your kingdom.” (Mb.5.73.8)

“If one finds an enemy who deserves to be killed, then one should never let him go.” (Mb.5.38.29)

“He should amass troops, and this should be done in secret. A king can never protect his kingdom by candor and by simplicity. A king should be both candid and crooked. He must employ crookedness and wrong acts when he wants to subdue the enemy. All these things should be concealed behind a candid and open exterior.”

“If a king is too gentle, then people disobey him. And if he is authoritarian they fear him. Hence, depending on the situation he should be authoritarian or gentle.” (Mb.12.140.

c) INFRASTRUCTURE

Provisions of facilities such as lakes and water canals, distribution of seeds, control of rodents, elephants, and those things which destroy harvests, augmenting farming by developing meadows for cattle to graze, etc., are all part of the assortment of ways meant to be overseen by the king and his government for the protection and continued development of the citizens. [Sanjeev: Knapp hasn't cited the specific section, but I assume this is mentioned in the Mahabharata]

d) SOCIAL MINIMUM

The feeble and downtrodden, blind, dumb, crippled, orphaned, old, widowed, diseased and distressed should be provided with food, clothing, medicines, shelter, etc. (Mb.12.86.24)

e) LIGHT TAXES to pay for the state

“The king should take a sixth of the income of his subjects. This is for the maintenance of the army for their protection. A king’s subjects are his children. But he should guard against compassion while punishing them for their wrong behavior.

“A king should become a gardener, not a coal manufacturer. A gardener takes care of plants to obtain flowers and fruits from them. Similarly a king should guide his subjects towards prosperity and then secure one fourth of their income from them in the form of taxes. A coal trader uproots a tree and then chars it completely. A king should not uproot his subjects likewise plundering their wealth totally.” (Mb.)

One of the primary functions of a ruler is to oversee and design the development of his country, and one of the means he uses for this is taxes. But how he collects tax must be systematic and with proper consideration of his subjects. As it is described: “Just as a bumble-bee sucks nectar from flowers without harming them, so also a king should collect money from his subjects without hurting them.” (Mb.5.34.17)

“Just as a bumble-bee sucks nectar from flowers delicately without harming the plant so also a king should collect money by levying taxes on his subjects, without hurting them. One who milks a cow does not milk it dry but takes care to see that some milk is left for its calf. Similarly a king should levy taxes on the people carefully after considering that they will be sufficiently provided for.” (Mb.12.88.4)

“The king should levy taxes, but they should never be so high as to hurt the subjects. He should know how to milk his kingdom. He should be like a bee gathering honey from the flowers. He should be a leech which draws blood mildly without the victim being conscious of it. He should behave like a tigress with her cubs while handling his subjects: she catches them with her teeth and yet never hurts them.”

“Like a leech, a king should gently take money from the state by levying taxes. A tigress lifts its cubs with its teeth yet does not harm them. Similarly a king should levy taxes on his subjects without causing them distress.” (Mb.12.88.5)

“O king, it is the ruler’s great folly if despite taking one sixth of the income of his subjects he does not nurture them like his children.” (Ramayana 3.6.11)

“It is said that a king who without protecting his subjects takes one sixth of their income (in the form of taxes) acquires their sins.” (Mb.1.213.9)

“Just as one who cuts off the udders of a cow with the hope of getting milk never acquires it, so also a state in which taxes are levied inappropriately, thus harrassing the subjects, does not prosper.” (Mb.12.71.16)

NO CORRUPTION PLEASE!

“A king should be proficient in the art of choosing honest men to hold important offices.”

“Honest men who are absolutely trustworthy should be appointed to administer justice. The state has her strong foundation only upon the proper administration of justice.

“The treasury of a king is meant for the protection of the army, his subjects and of righteousness (Dharma). If it is used for these purposes, it will prove beneficial. On the other hand, if the treasury is misused, it will prove disastrous. Should the king use the royal treasury for his wife and children and to fulfill his own sensual pursuits, it will bring him unhappiness and he will attain hell.” (Shukraniti 4.2.3-5)

Yudhishthira asked: “What should be the characteristics of the legislators, the ministers of war, the courtier, and the counselors of a king?”Bhishma responded: “The legislators should be men who are modest, self-restrained, truthful and sincere, and they should have the courage to speak what is proper. The ministers for war should be those who are always by the side of the king. They should be very brave. They should belong to the higher caste, and be learned and affectionate to a fault as far as the king is concerned. A courtier should be of high lineage. He should always be honored by the king. He should be a man who has the king’s interests always at heart. He should never abandon the king whatever the circumstances may.

Vidura said: “I will tell you what a wise man should be like. A man should aspire for the higher things, ideals, in life. The assets of such a man are self-knowledge, exertion, forbearance and steadiness in virtue. Such a man is wise. Neither anger, nor joy, nor pride, nor false modesty, nor vanity, can distract him from his purpose. His actions are always done with the thought that they should serve both the worlds. Desire does not tinge his actions. Honest deeds delight him and he loves what is good. He is unaffected either by honors or by slights. Like a lake in the course of the river Ganga, he is calm, cool and unagitated.

[Tax exemption for Brahmins!]

“Most of the authors of the Smritis have stated that taxes should not be levied upon the Brahmanas (priests) who have mastered the Vedas. This is because the king gets one sixth of the merits acquired by a Brahmana following the righteous path.” (Vishnu Dharmasutra 3.26-27)

THERE IS, HOWEVER, SOME  FEUDAL PATERNALISM IN THE MAHABHARATA

“Keeping the subjects happy on this earth itself is the code of righteousness (Santana-Dharma) of a king.” (Mb.12.57.11)

“The king who nurtures his subjects on the best possible way is certainly knowledgeable in righteousness. Why does such a king require penance? Why at all does he need to perform sacrificial fires?” (Mb.12.69.73)    
“A king must consider that his first duty is to his subjects. He should guard them as a mother guards the child in her womb. Will any mother have thoughts of pleasing herself when her child is in her womb? All her thoughts will be bent only on the child and its welfare. Even so, a king should subordinate his desires and wishes to those of his subjects. Their welfare should be his only concern.”    

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