In Arthasastra, Kautilya shows a knowledge of basic economics that had no parallels in Western economic thought until the publication of Adam Smith’s Wealth of Nations in 1776. Although the king was at the centre of the body politic in Kautilya’s time, Kautilya makes it clear that the king is bound by an implicit social contract and that the ultimate objective of the king, in economic and other affairs, should be to benefit his subjects. Their happiness or welfare should be the prime objective of State policy. As pointed out here, Kautilya’s conception of economics was superior to that of the Mercantilists and the Physiocrats. Given the central position of the Mauryan State in directing economic activity and providing security, the importance of adequate receipts for the Treasury was stressed. In doing so, Kautilya develops principles of taxation that are to be found in modern texts. His discussion of public economics and finance is extensive. However, he was keenly aware that the fortunes of the Treasury and the prosperity of the nation depended on its development of agriculture, industry, trade and commerce and the efficient functioning of these economic sectors. He suggests various policies that the State should follow to foster their development. Many modern concepts of economics underlie much of Kautilya’s discussion is Arthasastra. Good governance is one of his central concerns and he gives much attention to agent-and-principal problems and asymmetry of information in relation to public administration. Other modern issues that can be identified in Arthasastra include urban-bias, the importance for State revenue of ‘market-making’ and the significance of adequate transport infrastructure for exchanging produce, as well as for defence purposes. At the heart of Kautilyan economics is the obligation of the State to provide for the social security and welfare of the people. The State was required to help the poor and helpless and to be proactive in contributing to the welfare of its citizens. This basic social principle appears to have appealed to many Indians over the centuries. Arthasastra provides much basic knowledge about economics, and several of its conceptions are still relevant. Overall, however, the political economy emphasized in it, or the economic system described, is one relevant to Mauryan period. Kautilya did not believe that it would be applicable for all times nor to all social settings. In that, as in many other respects, he displayed great wisdom.
