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Arthasastra_PM.pptx

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Arthasastra_PM.pptx

  1. 1. Some Insights from Arthashastra Pulak Mishra Department of Humanities and Social Sciences
  2. 2. Basic Notions and Concepts • Discussions on Economics in combination with Philosophy, Ethics and Politics • Four means of production - land, labour, capital and organization with land as the main source of wealth accumulation using labour • Concept of demand and supply • No arbitrary price fixing by the king in isolation of demand and supply  Arbitrary price fixing in isolation of demand and supply - deviation from equilibrium - may not maximize welfare  Similar to the idea of invisible hand of Adam Smith • Recognition of adverse impact of monopoly power – recommendation for setting profit limit (allowance of 5 to 10 percent profit of operations)
  3. 3. Economic Activities • Major economic activities - agriculture, animal husbandry and trade • Agriculture based economic landscape • Knowledge of the king about the essentials of the national economy - crucial to discharge functions successfully • Emphasis on accumulation of wealth (metals, labour, forest produce, etc.) • Agriculture and animal husbandry - basic sources of new wealth • Importance of wealth for welfare (e.g., protecting people against famines) • Responsibility of state and community for development of agriculture • Valuation of land based on its fertility • Wage regulation and settlement of disputes between employers and workers
  4. 4. Role of the State • Emphasis on role of the state in economic activities • Idea of welfare state - state’s duty to look after the disadvantaged groups • Involvement of the state in planning and implementation of policies, revenue collection, judiciary, business activities, etc. • Existence of state-controlled the production and distribution systems • Participation of private businesses in manufacturing and selling • Existence of both state owned and private businesses – possible conflicts – parity in prices to resolve the conflicts • State’s intervention in case of over production (to avoid price slash) – similar to concept of price floor
  5. 5. Tax Structure and Budget • Taxation (rajkar) – major source of revenue (but with limited taxing power of the state) • Equitable and justified tax structure with two broad principles of taxation: (i) Levying once a year; (ii) Levying based on the ability to pay – not to make burdensome • Major sources of tax revenue:  Taxes on land, forests, property, customs and excise duties, fines, profits of state, factories and crown monopolies  Taxes on manufacture and sale of salt, intoxicants, trade in horses, fine wool, elephants, road tolls, etc. • Not heavy and excessive taxes -16-20 percent ( 1/6th or 1/5th ) of the economic activities  Possible adverse impact of higher taxes on economic activities  Possibility of tax evasion following higher tax rate • High tax rate (up to 50 percent or more) for harmful goods or services - higher tax rate on cigarettes, liquor, etc. in today’s context • High tax rate on import of luxurious goods - to discourage their imports
  6. 6. Tax Structure and Budget • Concern about the expenditure side of the budget - surplus budget to avoid crises - aggregate wage bill not exceeding one-fourth of the total revenue • Major areas of public expenditure: public administration, defence, salaries of ministers, government employees, maintenance of national store houses and granaries, acquisition of valuable-ornaments, gems, precious stones, etc. • Emphasis on protecting weak and aged; providing jobs to unemployed • Emphasis on maintenance of sanitation and prevention of fire • Depositing the surplus amount either with the treasury or the war chest • Intelligence department and efficient audit to prevent economic offences
  7. 7. Some Other Aspects • Emphasis on international trade for economic prosperity • Trading by the state in certain areas; regulation and development of trade • Incentives to counter higher risks and uncertainties – recommendation for higher rate of profit on imports vis-à-vis domestic goods (to incentivize against robbery during shipments)  Similar to the profit theory of Knight – profit is the reward of uncertainty • Determination of rate of interest based on (i) risks involved and (ii) productivity of capital (against state determined interest rates) • Higher interest rate on loans for business vis-à-vis that for personal causes • Exemptions from payments of interests on human considerations (inability to pay, etc.) – similar to modern days borrowing and lending system

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