Chanakya's prescription for the Budget, a crash-course on social relevance and productivity

Last Updated: Thu, Jul 04, 2019 19:43 hrs

The budget season is here. Eager eyes await India's first female full time Finance Minister and Nirmala Sitharaman to deliver some big bang announcements. Big Bang announcements, however, may not be easy given the economic situations or its narrative.

Concerns over GDP (Gross Domestic Product) cooling, a stunting jobs market, and a stress-like situation in several sectors such as agriculture have painted a gloomy picture of the economy. On the revenue side, GST collections touching a low of below Rs 1 lakh crores for FY20 and direct taxes not matching with expectations could prompt the government to tighten its purse.

Around these trying times, the budget offers hope to citizens as well as the corporate who seek a cut on taxes.

Given this narrative, the Finance Ministry certainly appears fixed on two extremes. On one extreme are doles, subsidies and tax-sops for the business and people. On the other side is getting the fiscal math balanced.

Kautilya or Chankya or Vishnugupta, India's finest economist, teacher, philosopher and royal adviser during the 3rd century Gupta kingdom, may have some solutions. The Arthashaastra, Chanakya's political treatise explaining various strategies contains economically sane yet socially relevant practices .

Dr. Radhakrishnan Pillai, an expert on Chanakya and an author of several best-sellers on India's early economist in a conversation with Sairaj Iyer of helps shed light on the man, his policies, his approach towards the budget and his expectations.

Edited Excerpts: Tell us a bit about Chanakya, the economist and his relevance today

Dr. Pillai: Kautilya practiced several economic, political and administrative strategies during 3rd - 4th century BC. But, many of his ideas and practices are still followed today. The census, segmentation analysis (both general and demographic) and other statistical tools that we follow today were started by Chanakya. And these practices are detailed in the Arthashaastra.

As an economist and a teacher, Chanakya understood several things such as the importance of education to society. He was a man who understood the subtle art of managing productivity levels.

When you compare his era with today, what are the most compelling factors to consider?

Women were highly paid back then. In fact one-half of a man's salary was credited to his wife. For instance, one-half of the King's salary was credited to his wife. This was the Indian model - Kautilyan model that empowered women with financial freedom.

In fact, the society was so productive that even prostitutes were taxed.

The system taxed prostitutes? Why?

We call that prostitutes, but the idea could be more than that. The policy involved women doing several tasks such as being the government's spies and they were skilled in several arts including music and painting. The last activity was that of prostitution.

This is not to demean them, but there is an entire chapter in Arthashastra on the topic of Ganika Adhyaksha, a very important department. The head of this Ganika department was an advisor to the King.

Could you explain about the state finances during his era?

During Kautilya's era, the government's primary revenue sources were fines and taxes. But, it's interesting to note that fines could be paid in cash or kind. The economy was largely driven by farming, yet there was significant contribution from sectors such as trade, shipping, and metallurgy.

The empire back then had a coinage system called the Panas accepted largely by the masses.

The taxation system was a simple one. It was one-fourth of the social class supporting the society. The broad age-wise classes were Brahmacharya Grihastha Vanaprastha and Sanyasa. The Grihastha or working class would support the other classes.

Our Shaastras respect income earners by saying - 'Dhanyo Grihastashrama' and Kautilya's economic model too respected them.

What about corporate taxation?

It differed from one-sixth to one-sixteenth of the produce. It differed from sector to sector, but this was ideally a range.

Was tax arbitrary back then? Did the King ever raise taxes observing some sectors make more money?

No. On the contrary when industries earned more, they were given tax holidays. That's the charm of the Kautilyan model. To make a person more productive, it just encouraged to produce more. The model also understood the difference between productive and unproductive and appropriately offered a stimulus package.

For example, if a farmer approached the government for assistance, he would get land up-front for a period of five years. He would also get tax holidays and other benefits for showing better productivity. If not, the farmer was given sufficient opportunities to attain a desired level of economic activity. However, if the farmer still remained unproductive, the government would take back the land but at the same time take care of him as a morally responsible government.

Is this instance of tax on farmers a hypothetical case?

No. During Kautilya's era there indeed was a tax on farming.

But, today we don't tax our farmers.

That is owing to a downfall in the economy at the hands of the British. We were an agrarian society back then and even today. With the British- Raj, we lost almost everything such as farmlands, our Zamindari system etc.

In fact, we didn't have food to eat. An acute distress was observed during the Bengal famine. The British took whatever was left in India to feed their soldiers and countrymen during the two World wars. So, farming our strength, unfortunately, became our major weakness.

For thousands of years, we had a history of rich farmers. But, the British, then lack of technology, and not learning any newer skills made our farmers poor. Also, post independence, the government realized that in a country of millions starving, farmers could not be taxed.

But having said so, I must also add that we have a section of farmers who are very rich; many of them so rich that they own a Mercedes Benz. It certainly opens the debate on whether to tax farmers or not but I certainly am proud of them being rich.

Did Chanakya adopt capitalist or a socialist touches? Or as a person was he more dovish or hawkish?

I will not put him in those categories. I would call him a productive economist. He was a man who understood human psychology and productivity well. He would give work according to the nature of the people and ensure that if they were productive, they were rewarded. If not, his system would still ensure their well-being as a moral responsibility.

What is your opinion on the Kautilyan model versus that of Capitalist or Socialist approaches?

The American model of capitalism pushes in money, but there is no guarantee that it would support people during failure. In fact, the capitalist model only looks at productivity. The moment a business turns unproductive it rolls back support. The American model of Hire and Fire is an apt example.

Capitalism only talks about successful models such as Apple, Google or Facebook. Look at India, we get to see so many well-funded start-ups failing because there is no mentoring.

The socialist model says that everyone should be taken care of and paid well. This model's inherent flaw is the productive people supporting the unproductive. It is obvious that the productive people question the system. Socialism is a good concept when the objective is to support everyone but it may not be a great concept to support productivity.

In fact, even the law of Karma says that if I work hard I should get equivalent returns for that. The Kautilyan model simply adds that if one is not productive, the model would take care of them. Also, good governance ensured that labor was applied to the right task in getting the best productivity.

Let me offer an example:

There are four brothers in a family. One employed with the army, one is a farmer, a businessmen and the fourth is a handicap. The three brothers earn money from their hard-work and are productive in different forms. What about that fourth brother? Should his lack of productivity on economic parameters mean that the system kill him or not consider him productive?

The answer is obviously no. The fourth brother's productivity cannot be measured from the standpoint of economics. There could be other parameters to determine his productivity.

Kautilya's economic model saw senior citizens taken care of without any fuss. Now, compare that with the capitalist model of Singapore where many elders have to work even after retirement just to get their pensions from the government. Their government says that in order to get pensions, the senior citizens must prove that they are physically fit. This is the failure of capitalism.

Kautilya is a balanced economic model that brings in collective conscience in several policies.

Covers of books authored by Dr. Pillai.

How many budgets would have Chanakya seen?

I would say if you are King, you have to study budgets of at least the past hundred years.

Why is that so?

The Prince, during his training itself is told to study budgets because doing so gave an understanding of the workings of the society, trends, weather patterns, and even years when additional budgetary allocation owing to war had to be made from the treasury.

During those years, budgets were a record keeping process for generations. Sadly, our country today may not have all the budget records of the past hundred years. But, Chanakya did that across several years - annual, quarterly, monthly, weekly, and even daily financial statements.

And these budget documents incorporate all the economic concepts such as GDP, Fiscal Math, GVA of various sectors?

GDP is just a statistical analysis. Obviously, they had those.

Had Kautilya been alive today, what would have been the top three things he would have sought?

His first expectation would have been making education completely free forever and for all. Education is the moral responsibility of any government.

Germany offers education free from KG to PhD; be it engineering or medicine, everything is free, including for non-Germans.

We are commercializing education in the country. It is this great land where Teachers and Doctors are revered as Gods and with the Capitalist model we are just commercializing everything. Unfortunately, also essential services such as hospitals.

The second expectation would be to allow students to experiment and ensuring good teachers. Free education will allow students to enroll in as many courses and excel at various subjects.

The third important part would be to support industries and the corporate sector. Chanakya between the 3rd- 4th century BC had industries such as shipping. He encouraged them, had labor laws, implemented the minimum wages act according to ArthaaShaastra. In fact, there were laws pertaining to sexual harassment at workplace as well.

This Bharata Varsha is currently stuck with a logjam of NPAs, infrastructure sector stumbling, credit issues, insufficient tax revenues, farm crisis, late monsoon, etc. How would Chanakya have solved these?

The major problem that we have at hand is a model which is not Indian. For instance in the economic concept of GDP, the word Gross makes it look as if it's a macro thing. In the example of the four brothers, the GDP model would have considered the handicap as a non-productive person. 

GDP is an economic model, but as a nation we should turn to social-economics.

I am not against banking system, but India has to understand that banking systems are good but not perfect systems either.

Coming to NPAs, the government's biggest pain area, the banking system has to fund to the needy. But, are they funding the needy? They don't fund a poor farmer but a rich man. Then this rich man defaults and leaves the country leaving an NPA. Isn't it banks own responsibility to perform due diligence? Similar to Chanakya's model, shouldn't the bank do regular follow-up to check the progress on the money lent and also track productivity?

Banking needs to understand that it should help entrepreneurs, sometimes write-off loans for unproductive loans too but then one can't have huge write-offs on a single case. It means the bank didn't do its due diligence.

What would Chanakya call a good budget?

The budget has to deliver what the population needs - infrastructure such as schools, hospitals. For this, it is also important that people pay their taxes and the corporate invest in research and development.

A good budget, according to Chanakya is one that makes everyone wealthy and the not-so productive people taken care of by the total wealth.

Economics is derived from the Latin word Oikonomia which simply means the amount of money required to run a house or management of a household. If the budget manages better households, the larger units will automatically fall in place.

Also, we need to examine various economic models and their suitability to our country. There is the Chinese, the Korean and even Japanese models but we are pursuing only the American model. To summarize I would quote from my philosophy professor who once shared, "The British left us and we accepted the Americans. But, we never became Indians."

Dr. Radhakrishnan Pillai is with the University of Mumbai (Department of Philosophy). He is also the founder-director of Chanakya Institute of Public leadership (CIPL) a research based organisation that is working to promote Indian concepts in management. He tweets at @rchanakyapillai.