It takes a certain level of intellectual daring to argue that a literature written in the fourth century BCE holds lessons for a digital, globalised, $4 trillion economy negotiating US tariffs and semiconductor supply chains. However, researchers and policymakers who have taken the time to study Kautilya’s Arthashastra, not the filtered synopsis, but the complete, raw original, tend to leave with an overwhelming sense of recognition. Some of the most significant economic policy discussions of our day are structurally similar to the issues Kautilya was addressing and the institutional solutions he created.
This is not a justification of the idea that ancient India already had all the answers or of civilizational nostalgia. The Arthashastra has its own shortcomings, blind spots, and morally problematic parts. When examined closely and in comparison, it does provide a set of timeless principles regarding taxation, public finance, market regulation, and governance integrity that have been independently established using modern theories of economics. Whether knowingly or not, India’s policymakers seem to be applying these principles with significant rigour. The numbers from FY26 give this a compelling case.
Kautilya’s Arthashastra: Not just a book, but a blueprint for a prosperous governance
The Arthashastra is a remarkably detailed work that was recovered by R. Shamasastry in 1905 after being lost for centuries. Fiscal policy, trade regulation, labour standards, infrastructure development, monetary systems, intelligence gathering, and foreign policy are all covered in its fifteen books. In contrast to many ancient writings on governance, it is nearly totally pragmatic, focusing more on the practical aspects of running a state than on intellectual principles.
The kosha, or treasury, serves as Kautilya’s primary managing concept. Everything else, including infrastructure, judicial administration, military capability, and welfare delivery, depends on the state’s ability to effectively collect and spend taxes. This is a nuanced insight about the need for efficient government, not a cunning case for extraction. A state that is unable to pay itself cannot defend its citizenry, maintain its infrastructure, or enforce its commitments. In this way, the Arthashastra represents an early expression of what contemporary economists refer to as ‘state capacity’, the institutional capability of governments to convert policy intent into actual results.
Kautilya’s emphasis on what we could now refer to as the enabling state rather than either the extractive state or the minimal state is what makes the text so intriguing for modern India. In addition to substantial governmental involvement in important vital areas, stringent anti corruption measures, and a sophisticated system of economic intelligence, he supported robust private enterprise, market competition, and the case of property rights. It is a mixed economy concept evolved two millennia before the phrase was coined.
Fair and efficient taxation: From Kautilya’s 1/6th principle to India’s GST
The primarily mentioned economic principle of Kautilya is his emphasis on reasonable taxation. His recommendation that the agricultural tax should not be more than one-sixth of produce and should be lowered during periods of drought or hardship predicted by two millennia what contemporary public finance theorists refer to as the optimal tax problem, how to raise enough money without having such disincentive effects that economic activity declines.
His four operational canons of taxation, which are found in Book II, are more fascinating and less frequently discussed. They state that taxes should be certain (predictable to the taxpayer), equitable (proportionate to capacity), convenient to pay (not requiring excessive compliance effort), and economical to collect (with minimal administrative costs). These are not just old fashioned beliefs, economists now use them to evaluate tax regimes, and they offer a helpful perspective for analysing India’s Goods and Services Tax.
By any measure, the indirect tax system before to the GST was ineffective. Octroi, entry tax, excise duty, VAT, service tax, and central sales tax are just a few of the seventeen overlapping central and state taxes that resulted in an unpredictable, unfair, compliance intensive, and extremely costly system. A commodity that crosses state boundaries may be taxed more than once for the same value. Consumer prices were raised by the cascade effect, which also promoted avoidance.
The most significant structural change to indirect taxation in India’s post-independence history was the introduction of the Goods and Services Tax (GST) in July 2017. Seven years later, the data is clear. In FY 2024-25, gross GST receipts hit ₹22.08 lakh crore, a record. This is a 9.4% year on year gain and nearly doubling in five years. In April 2025, the largest monthly collection was ₹2.37 lakh crore, which would have been unthinkable before GST. From 6.9 crore returns in FY22 to 9.2 crore in FY25, the income tax base, a different but related indicator of formalisation, also grew.
However, an honest evaluation of the GST story must take into account its legitimate challenges. With its four slabs, several exemptions, and inversions, the rate structure has turned out to be more complicated in reality than the initial ‘one nation, one tax’ idea anticipated. A slab rationalisation, which has been constantly considered but not accomplished, is still unfinished business. Designed as a temporary solution, the compensatory cess mechanism has outlived its initial function. Although these are not fatal defects, they are real ones, and Kautilya himself would have probably pushed for a more straightforward structure because he was careful about the predictability and clarity of tax regulations.
Nonetheless, the trajectory aligns with his concept. The evasion that Kautilya spent several chapters pursuing has significantly decreased as a result of the transition toward digital compliance brought about by e-invoicing requirements and GSTN connection. The Arthashastra would have emphasised the importance of maintaining administrative discipline to ensure that compliance gains are properly sustained as the economy evolves.
Self-reliance and strategic production: The Arthashastra’s industrial logic and the PLI experiment
Kautilya distinguished clearly between areas that required strategic state support and areas where market competition was adequate. He advocated for active governmental encouragement of arms manufacture, metallurgy, the textile industry, and shipbuilding, rather than permanent state control, through what he defined as incentive structures and supervised workshops. The reasoning was both strategic and economic; an over-reliance on foreign vendors for essential items generated vulnerability that could not be completely addressed by diplomatic skills.
The Production Linked Incentive (PLI) scheme is a performance based manufacturing incentive program that directly links government funding to incremental domestic production. This logic, when applied to 21st century circumstances, perfectly captures its conceptual design. The PLI model is remarkable because it does not entail the state selecting permanent victors through ownership, instead, it establishes time bound, performance based incentives that connect private interests with public strategic goals.
Up until December 2025, the outcomes are significant. The Ministry of Commerce and Industry reports that over 14.39 lakh direct and indirect jobs have been created, sales have exceeded ₹20.41 lakh crore, exports have exceeded ₹8.3 lakh crore, and PLI initiatives across 14 sectors have drawn cumulative investments of over ₹2.16 lakh crore. Sales in the telecom sector have increased more than sixfold over the fiscal year 2019-20, and India has deployed an indigenous end-to-end 4G technology stack through BSNL, a strategic capability with major consequences beyond its commercial worth.
The fact that PLI performance has been inconsistent across industries is an honest assessment. Electronics and pharmaceuticals have greatly surpassed expectations, whereas several other industries have seen slower adoption and lower than expected investment realisation. Additionally, if the objective is true value chain integration rather than downstream assembly of imported inputs, the program has been more successful in luring investment into final assembly than deeper component production. Several government and NITI Aayog studies have recognised these well-documented implementation limitations. This type of performance audit is exactly what Kautilya would have insisted on, given his notable stubbornness over the distinction between policy design and policy outcomes.
Agriculture, trade regulation and consumer welfare: Ancient principles in modern markets
Modern economics would acknowledge that agriculture holds a fundamental structural place in the Arthashastra. According to Kautilya, farming was the main source of surplus and the foundation of all other economic activity. To support it, he created a complex administrative framework that included irrigation management, oversight of seed quality, control over weights and measures, and most importantly the Panyadhyaksha, or superintendent of Commerce , whose job it was to stop hoarding, price manipulation, and product adulteration.
The purpose of the Panyadhyaksha was to eliminate the distortions that concentrated market power and information asymmetry could cause by ensuring that markets functioned in a transparent and competitive manner. In contemporary terms, this is the regulatory role of a market economy, maintaining the conditions necessary for competitive markets to operate fairly rather than exercising command and control.
Over the last decade, India’s agricultural policy has shifted in this direction, albeit slowly but steadily. By 2025, millions of farmers throughout more than 1,000 market yards had enrolled with the e-NAM (National Agriculture Market) platform, which connects mandis digitally to promote price discovery across state boundaries. However, adoption has varied among states and commodities. Over 93.5 million farmers have benefited from the PM-KISAN scheme, which offers ₹6,000 in direct cash transfers to qualified farmers each year. With the recent introduction of digital Farmer IDs (Kisan Pehchan Patra), which are linked to land records and Aadhaar, a layer of verification has been added that directly addresses the duplication and leakage that plagued previous grants.
The Kautilyan market superintendent logic is embodied in the Open Network for Digital Commerce (ONDC), an interoperability layer intended to prevent monopolistic concentration in e-commerce. It creates a public infrastructure that enables smaller sellers to engage in digital commerce without becoming permanently reliant on a small number of dominant platforms. Although the design concept is sound, its influence is still growing.
The ongoing existence of minimum support price systems and procurement procedures, which in reality have resulted in substantial fiscal expenses and contributed to crop pattern distortions, is more difficult to reconcile with a completely Kautilyan framework. The market supervisor in Kautilya was expected to facilitate fair pricing rather than impose them on a significant sector of the agricultural economy. In Indian agriculture, there is a fundamental conflict between the political economy and market efficiency that cannot be resolved by digital infrastructure alone.
Ethical governance and digital public infrastructure: The anti-corruption architecture
The Arthashastra’s depiction of official corruption is arguably its most prophetic and least romantic aspect. When it came to human motivations, Kautilya was no fool. His well-known remark that, “just as the tongue cannot avoid tasting honey poured on it, a government official handling public cash cannot avoid extracting at least a little”, was not a signal to hopelessness. It served as the foundation for an extraordinarily complex system of institutional checks and balances, including rotating appointments, surprise inspections, whistleblower awards, independent audit systems, and graduated sanctions for various types of financial wrongdoing.
The fundamental realisation is structural rather than moralistic, corruption cannot be eradicated by persuasion, instead, the environment in which it exists must be transformed. The levers include more transaction visibility, less opportunities for arbitrary rent extraction, and credible penalties for violations of the law.
This concept has been effectively operationalised at scale via India’s digital public infrastructure framework. Direct benefit transfers have been made possible by the JAM trinity of Jan Dhan accounts, Aadhaar biometric identity, and mobile connectivity. This eliminates the several intermediary layers that previously allowed for leakage. According to the Economic Survey 2025-26, by March 2025, 55.02 crore bank accounts have been opened under PMJDY, with 36.63 crore of those accounts located in rural and semi-urban areas. A previously cash-dominated economy now has a transaction record thanks to the UPI ecosystem, which accounted for 85.5% of all digital payment transaction volumes in H2 2025, according to the RBI’s Payment Systems Report. This makes economic activity legible to tax administration in ways that were previously structurally impossible. With a compound annual growth rate of 42.9%, total payment transaction volumes increased from 6,437 crore in 2021 to 26,819 crore in 2025.
It is important to acknowledge that formalisation and anti-corruption are not the same thing when evaluating this shift. While digital systems may allow for new types of data concentration and surveillance, they also limit some types of leakage. The Arthashastra, which assumed a unified and accountable sovereign, did not have to deal with the unresolved policy frontier of the governance of the digital public infrastructure measure itself, which includes issues of data ownership, access, and the accountability of systems like GSTN and UIDAI.
The global crisis and the Kautilyan playbook
Global Economy in the Shadow of War, the IMF’s April 2026 World Economic Outlook, is an unusually grave report. The International Energy Agency has described the closure of the Strait of Hormuz and significant damage to Middle Eastern energy infrastructure following the start of the Iranian crisis as the biggest interruption to the world’s oil market in history. By mid April, Brent crude prices had increased by more than 50% from the beginning of the year due to an early decrease in the world’s oil supply of about 10 million barrels per day. Global growth is now predicted by the IMF’s base case to be 3.1% in 2026, compared to 3.4% prior to the conflict. The IMF cautions that a protracted battle may cause global growth to drop to 2.5%, a level that has traditionally been associated with severe economic hardship.
India has a direct and substantial exposure. The nation imports around 88% of its total oil needs, making it the third-largest oil consumer in the world. In FY26, oil and petroleum products accounted for $174.9 billion, or 22% of India’s total import expenditures. India’s yearly import bill increases by about $17-18 billion and the current account deficit increases by $12-15 billion for every $10 increase in oil prices. In March 2026, the cost of war risk insurance for Gulf based tankers increased by more than 400%. In a rare direct public appeal in May, Prime Minister Modi asked people to cut back on fuel use, travel less abroad, and stop buying gold. This shows how seriously the administration takes the mounting financial strain.
This is a severe stress test by any standards. The Arthashastra’s teachings are most valuable in this situation, not in the cosy 7.4% growing.
On fiscal reserves and sancity of the Kosha: Kautilya’s interest on keeping a healthy treasury went beyond simple caution in prosperous times. It was specifically intended to be used in times of distress. He stated, ‘A king with a depleted treasury cannot maintain his army, his allies, or his welfare schemes.’ With approx $700 billion in foreign exchange reserves, more than eleven months’ worth of import coverage, and a banking system with a multi decade low GNPA ratio of 2.2%, India is well positioned to weather this blow. The recent fiscal consolidation, which some have described as extreme austerity, increasingly resembles Kautilyan treasury management, creating buffers since their absence in a crisis would be disastrous. The starting position is significantly stronger than it was during the 2013 taper tantrum, the last time India faced significant external pressure, when reserves barely covered seven months of imports. However, it is debatable whether those buffers are adequate for a prolonged oil shock at $100 or more per barrel.
On strategic self-reliance and the vulnerability of import dependencies: Kautilya’s warnings about relying on foreign sources for strategic items, written in the context of war materials and metal supply, now read as an almost peculiarly accurate depiction of India’s energy situation. A country that imports 88% of an input that accounts for 22% of its import bill has created a structural vulnerability that no diplomatic skill can fully neutralise when supply routes are physically disrupted, making the current crisis a structural proof of concept for the Atmanirbhar Bharat logic. On this reading, India’s renewable energy program, which has reached 234 GW of installed capacity as of 2025, met the COP26 target of 50% non fossil electricity capacity five years ahead of schedule, and aims for 500 GW by 2030, is not just a climate policy, but a Kautilyan strategic necessity. In essence, each gigawatt of domestic solar or wind power represents a barrel of oil that doesn’t have to travel across the Strait of Hormuz.
On trade reorientation and the value of diversification: Kautilya’s strong reminder against becoming overly dependent on any one trade partner or route is one of the lesser known facets of his trade philosophy. In order to protect the state’s ability to reroute trade in the event that any one business connection turned unfriendly or was physically disrupted, he advocated for the maintenance of several economic relationships. A Kautilyan trade policy should be created to take advantage of the current global moment, where trade fragmentation, US tariffs, instability in the Middle East, and the reorientation of supply chains away from China are all concurrently changing the geography of global commerce. India’s growing position in electronics manufacturing through PLI and its services exports, which increased 6.5% between April and December 2025 despite the wider global headwinds, are precisely the kind of diversification that lowers exposure to any one commodity, route, or geopolitical relationship.
Conclusion
It is not possible to directly apply the Arthashastra as a policy manual to India in 2026. It is a text that merits careful comparative reading, not because it foresaw the GST or UPI, but rather because the structural issues it attempted to address, namely, how to maintain market competition without giving up on state responsibility, how to build strategic economic capacity, how to reduce corruption without paralysing governance, and how to tax fairly without stifling enterprise, are clearly the same issues that currently confront India’s economic policymakers.
The similarity implies that the fundamentals of sound economic administration have a certain resilience that cuts across time and space, which is more modest and beneficial than civilizational triumphalism. The concepts of performance linked industrial strategy, broad based and moderate taxes, market regulation that promotes rather than eliminates competition, and anti corruption architecture that modifies incentive structures rather than just punishing individuals are not exclusive to India. However, according to FY26 statistics, India’s present policy trajectory is executing these principles with remarkable seriousness, and Kautilya expressed them with remarkable clarity.
How the story is told in 2047 will depend on whether that seriousness can be maintained in the face of institutional and political pressures over the next 20 years, as well as whether the unresolved issues in agriculture, employment quality, and subnational fiscal capacity can be handled with the same discipline.
