Indian economic thought: A less-understood and misunderstood legacy

Indian economic thought is often misunderstood.
Various studies of the Smriti texts, Arthashastra, Tirukkural, Sukranitisara, and Vedas reveal the depth of ancient Indian economic thought.

Indian economic thought: The study of economic history in India is heavily influenced by western political and economic thinkers. The general understanding is that Indians are otherworldly people and their philosophy and ideas have very limited application in the materialistic world of economics.

Perhaps that’s why economist Raj Krishna dubbed the slow economic growth rates in the initial decades of post-independence India as the Hindu rate of growth in 1978. However, later studies revealed the forgotten economic thought of ancient India, at least to the academic world. Study of the Smriti texts, Arthashastra, Tirukkural, Sukranitisara, and Vedas reveal the depth of ancient Indian knowledge on economic issues.

The modern economic theory suffers from its unidimensional focus on self-interest in its materialistic form. The ancient Indian idea of welfare, however, was multi-dimensional with four-fold objectives of life (purusharthas), four stages of life (ashramas), and four-fold professions (varnas), combining to form 64 combinations of economic life with different objectives. The four-fold stages of life may well be compared with the life cycle hypothesis of Modigliani.

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Dharma in Indian economic thought

The concept of dharma is central to Indian economic thought. One of the purusharthas, dharma means much more than what is understood in the narrow sense of religion. It meant righteousness, truthfulness and charity, which are more associated with the satisfaction of the soul. The modern parallel to this concept can be found in behavioural economics, which has proven that man’s objectives can be influenced by something more than mere monetary incentives.

This was the concept behind the nudge economics used by the government of India to encourage upper middle class and middle class citizens to give up LPG subsidy by appealing to their conscience. Dharma or righteousness as a motive of action was visible in suggestions on kingship by Rama to Bharat, Krishna to Arjun on war as duty and interactions between Nachiketa and his father on concept of charity and philanthropy.

Concepts like charity also comes under the ambit of dharma. The Rig Veda describes charity as a voluntary act, rather than a fiat as in Abrahamic religions. Bhagwat Gita even describes three kinds of charity — the one without expectations (satwik), another given grudgingly with expectations (rajas), and the one provided with wrong causes and wrong times (tamas).

Charity in modern economic terms is treated as a positive externality, especially in times of economic slowdowns to boost consumption. On similar lines, the Indian texts too proved to be experiential in recognising the goodwill and virtuous cycle generated by charity.

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Wealth in ancient Indian thought

Defying popular perception, wealth and artistic pleasure (artha and kama) were considered as important as dharma. One of the quotes said by Arjuna to Yudhishthira in the Mahabharata, “Wealth brings about accession of wealth, just like domesticated elephants are used to capture wild elements…”, reflects the deep understanding and due importance given to wealth creation by early Indian thinkers.

The emphasis is laid not on wealth creation, but on wealth creation through ethical means, as a reading of Shri Sukta would suggest. The importance given to material aspects cannot be overemphasised when we note that Book 2 and 3 of Tamil text Thirukkural are titled Porum (wealth) and Inbam (pleasure). Importance to artistic pleasure is also given in the Natya Shastras and Vedas.

One of the most important concepts of the Indian economic thought and literature, the varna system, is unfortunately misunderstood as a social division rather than an economic one. Texts like the Vajra Suchi Upanishad explains the varna system as ‘guna-karma’, an attribute-based classification. Avni Samhaar, a play by 8th Century Scholar Bhatta Narayan, quotes Karna, “Whether a charioteer, or a charioteer’s son, or whoever else I am, birth in a family depends on fate. Gallantry or deeds depend on me.”

In the Mahabharata, a discussion between Bhrigu and Bharadwaj points to the belief among sages that all four Varna as similar as humans, for all of them bleed, sweat, toil and suffer in a similar manner. Ambedkar in his collected works pointed out that varnas were allotted on occasion of Upanayana, which used to happen after 12 years of education. These examples and anecdotes show that the idea of the varna system was not as evil as it later evolved to become.

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Statecraft and economy

On the concept of state and economic policies, the Aitereya Brahmana described various forms of state like rajyam (state), maharajyam (greater state) and ganarajyam (sovereign state), among several others. Kingdoms were divided into janapadas and mahajanapadas, where kings were the representatives of the people and kingship was not necessarily hereditary. Narada questions kings whether they have built wells, provided loans at concessional rates, taken care of the destitute and protected the citizens and industries from external threats.

These concerns compare well with modern policy concerns of governments. On the concept of revenue deficit, Narada asked Yudhishthira whether or not his administrative expenses were 1/4th, 1/3rd, or at worst 1/2nd of his income. Kautilya in Arthashastra advised the king that salaries to bureaucracy must not exceed 25% of his own income. Thus, there was great concern for fiscal prudence in administration in those times.

On monetary aspects, Panini discussed weekly, monthly and annual compounding in an era as early as 6th century BCE, while Kautilya discussed the relationship between the riskiness of lending and interest rate to be charged. On the contrary, Greeks considered interest income as barren, and compared the idea of charging interest to committing a murder. Value for capital and wealth was conceptualised by Indian economic thought before the rest of the world.

Public finance in India thought

We can also find an example of quantitative easing during Kautilya’s period where copper coins were plated with silver to increase money flow in the time of a crisis at the minimum state cost. Comparable to the modern idea of pay commissions, Kautilya had specified a wide range of salary, ranging to be paid to bureaucrats with different skill sets. Factors of production have also been discussed and highlighted in the Ramayana, where mentions of land surveyors, plotters and mechanical operators can be found in abundance.

The Yajur Veda itself marks various professions ranging from basket makers to butchers. Concern for labour issues has also been discussed extensively in the Ramayana and Mahabharata, where kings were advised to never delay the payment of wages. References to labour unions have also been made in these texts and they have been represented by terms like Nigam, Sangha and Nikaya. Perhaps labour unions are not as western as they seem to be. The union leaders were called Shreshthas.

Land has been regarded as Vasudha or Vasundhara by ancient Indian economic thought. The terms signify that land was viewed as wealth creator and not wealth in itself, even in a society that was agriculture-based. This was because God was believed to be the owner of every natural resource, while the king was merely a custodian (Purva Mimamsa, 400 BC). The respect for property rights and sovereignty was well demonstrated when Rama rejected the idea of establishing his own kingdom in Lanka and decided to return.

It is said that science without history is like a man without memory. The same stands true for economic sciences as well. Consciously or unconsciously, ancient Indian economic thought and attitudes have been reflected in post-independence administration and the economic planning of the country. It is high time we acknowledge our ancient wisdom and take lessons from it to deal with these turbulent times.

(Professor Satish Y. Deodhar teaches economics at Indian Institute of Management, Ahmedabad. This article is the reproduction of his speech at a webinar organised by EGROW Foundation, a Noida-based think tank.)