By PC JhaAdvisor, FICCI Committee Against Smuggling and Counterfeiting Activities Destroying Economy
Apart from spiritual and philosophical insights, India’s ancient texts offer practical frameworks for governance, economics, and public finance. For nation-building, we often seek best practices from developed economies. Yet, our own ancient texts like the Arthashastra and Manusmriti provide enduring wisdom that is relevant even today. These texts advocate a model for sustainable governance rooted in economic rationality rather than based on the welfare of a few at an enormous cost to the masses. They reflect lived principles of empires that achieved an ideal blend of territorial integrity and expansion, social stability, and economic prosperity.
One of the most powerful embodiments of this wisdom was the Mauryan Empire, which was the first realisation of Akhand Bharat. The Mauryan state stood out for its efficient administration, ethical statecraft, and investments in national security and public welfare.
At the time of Chandragupta Maurya’s rise in 322 BCE, India was politically fragmented, dominated by small, often warring, kingdoms. Against this backdrop, Kautilya, the strategist, economist, philosopher, and advisor to Chandragupta Maurya, authored the Arthashastra as a comprehensive manual of governance. It was also a response to the complexities of building and maintaining a vast, diverse empire. It offered detailed guidance on governance, economic management, taxation, military organisation, diplomacy, and penal code. Remarkably, this manual influenced governance in India for the next 1,500 years.
The idea of yogakshema was central to Arthashastra’s vision of sustainable governance—yoga (resource acquisition) and kshema (their effective use). This holistic approach ensured both raksha (security) and palana (welfare) of the people—and under this umbrella, the book declared “Kosha moolo danda”, meaning “revenue is the backbone of administration”.
Arthashastra presented a remarkably nuanced approach to taxation, considering it a dharmic responsibility, binding both ruler and citizen. Taxes were to be fair, moderate, and proportionate, designed to encourage compliance rather than prohibitive. Also, taxpayers had transparency on how the taxes they paid were utilised, and tax officials were subject to strict oversight to prevent corruption. Revenues were to be reinvested in public-facing sectors such as agriculture, trade, infrastructure, education, and culture. The system also allowed for tax relief during natural calamities, highlighting an early form of counter-cyclical fiscal policy.
A striking example of the Arthashastra was the prescribed tax rate—one-sixth of a citizen’s income, or about 16.67%. This rate was designed to strike a careful balance, low enough to encourage compliance and productive activity, yet adequate to support the state’s functions. Interestingly, modern fiscal theory such as the Laffer curve also suggests that moderate, well-calibrated taxation leads to better compliance and stronger revenues.
Today, as India strives to improve its tax-to-GDP ratio, expand the formal economy, and work towards building a $5-trillion economy by 2027 for a Viksit Bharat by 2047, Kautilya’s legacy is inspiring. What made his vision enduring was its firm grounding in fiscal prudence and the belief that true state power emerges not from extraction, but from empowerment. This philosophy has quietly guided India’s fiscal evolution since Independence by moving beyond the colonial-era taxation system that prioritised revenue over welfare. India has emphasised redistribution and embraced progressive taxation and investment in public welfare. Landmark reforms like the goods and services tax (GST) and the digitisation of tax systems have taken this focus forward, echoing Kautilya’s vision of a tax regime that is clear, efficient, and aligned with the larger goal of shared prosperity. Yet, India’s fiscal journey is far from complete. Some key challenges remain, such as broadening the tax base, reducing informality, and building compliance through trust. For voluntary compliance to thrive, tax rates must be fair, moderate, and aligned with people’s ability to pay. Citizens also need to see tangible returns—better infrastructure, public services, and responsive governance. To be sure, the present government has made visible progress; however, much more needs to be done. Tax rates on many items are still high, and the GST structure remains complex with many slabs. High rates incentivise evasion, burden enforcement, and fuel illicit markets, ultimately undermining revenue and public welfare.
As India navigates shifting geopolitical dynamics and evolving economic paradigms, it must draw strength from its roots. The Arthashastra’s timeless tenets are not relics of the past, but living principles for building a modern, resilient, and inclusive nation. India’s sustainable economic model must reflect its ancient wisdom while adapting to present realities rather than replicating the path of developed nations. In this journey, history is not merely something to be remembered; it is to derive inspiration from and build upon. Ignoring such teachings can be only at our great peril.