SEVERAL WRITERS before Kautilya (c. 350-283 BCE) had included in their works discussions related to arthaniti (economic policy), dandaniti (judicial system and administration) videshniti (foreign policy) during the period 650-600 BCE. They deserve credit for developing these subjects but their analyses lacked the coherence of a purposeful and comprehensive policy framework. It was Kautilya—mentor of the Mauryan emperor Chandragupta—who developed more than a score of new concepts, a systematic approach, a scientific methodology and provided comprehensive and coherent analysis.He visualised an empire that was prosperous, secure, secular, crime-free and anchored to the secular Vedic values of compassion, tolerance, non-violence, truthfulness and honesty. Kautilya’s Arthashastra contains several truly original and ageless insights for building and sustaining a prosperous and secure empire.Kautilya understood the concept of backward induction and used it to reason backwards as to what was needed for achieving prosperity and national security. He identified the necessary ingredients—such as the establishment of a rule of law, an impartial judiciary, private property rights, building of infrastructure, incentive mechanisms to ensure efficient and honest government officials, encouragement of dharma (moral and spiritual rules of human behaviour)—required for the creation of a prosperous system. Also, he argued that a nation could never achieve prosperity under a foreign ruler—indicating that independence was a pre-requisite for riches. Accordingly, he developed a sort of power index of a nation based on its physical might (army and armour, morale of the forces), intellectual strength of the government and the degree of public support.Kautilya understood some basic human tendencies and limitations inimical both to national security and prosperity—such as bounded rationality, time inconsistency and shirking (or moral hazard)—and devised measures to handle them effectively, efficiently and ethically. He was also aware of the problems caused by budgetary constraints. National security demanded expansion in spending on infrastructure and in military capability. But an increase in taxes was considered counterproductive, as that would retard long-term economic growth, make taxpayers discontented and prone to be turned against the king.That meant a poor nation with a smaller tax base could not finance the building of the requisite military capability. It certainly could not match the power of a rich nation and consequently would become an irresistible target for attack by stronger nations. He argued that power breeds more power but the challenge was: how to initiate the process with limited resources. His genius lay in offering insights for meeting the challenge—that is of maintaining independence and becoming prosperous.First, according to Kautilya, economic prosperity strengthened national security and brought happiness to people, but it was not sustainable unless the gains were distributed fairly.Second, he emphasised the role of good institutions for internal stability. He considered rule of law (and not rule by law), essential for protection of private property rights and constraining the predatory or extortionary behaviour of rulers and bureaucrats. Internal stability, in turn, was essential for acquisition of knowledge and accumulation of capital.Third, he emphasised good governance, which meant clean, caring and competent administration so that resources were not siphoned off from building infrastructure to personal uses.Fourth, according to him, a judicious blend of moral and material incentives was necessary to elicit optimum effort from the king at the top to the herdsman at the bottom of the economic pyramid. [Sanjeev: material incentives were CRUCIAL: the highest salary was 800 times the lowest]
Fifth, changes could be brought only through co-operation and co-ordination and not through confrontation and coercion.Sixth, it was a king’s moral duty and in his self-interest to behave like a loyal servant to his royal people.Kautilya believed that prosperity, security, safety and freedom of religious practices were the sources of happiness to all individuals. He argued that a king could win pubic support only by raising their standard of living. He explained, “When a people are impoverished, they become greedy; when they are greedy, they become disaffected; when disaffected, they either go to the enemy or kill their ruler themselves” (7.5). He suggested, “therefore, the king shall not act in such a manner as would cause impoverishment, greed or disaffection among the people; if however, they do appear, he shall immediately take remedial measures (7.5).”With that in view, Kautilya advised the king: “He shall follow policies which are pleasing and beneficial to the constituents by acting according to dharma and by granting favours and [tax] exemptions, giving gifts and bestowing honours” (13.5). Kautilya recommended, “Remove all obstructions to economic activity.”
According to Kautilya, [a] person … should be free to practice his or her religion. He advised that the king “shall adopt the way of life, dress, language and customs of the people, show the same devotion to the gods of the territory [as his] own gods and participate in the people’s festivals and amusements” (13.5).
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