Economic Lessons from Arthashastra

Good governance in Kautilya's literature is aimed at fulfilling the welfare of the people. "In the happiness of the
King's subjects lies his happiness, in their welfare, his welfare." Kautilya said that good governance and financial
stability go hand in hand. According to him, there is stability if rulers (managers) are responsive, responsible,
accountable, removable, and recallable, otherwise there would be instability.
One of the very good shlokas of governance from Arthashastra is "The King should look to the bodily comforts of
his servants by providing such emoluments as can infuse in them the spirit of enthusiasm to work. He should not
violate the course of righteousness and wealth. Thus, he shall not only maintain his servants, but also increase their
subsistence and wages in consideration of their learning and work."Arthashastra provides many valuable lessons to
be learned by the present day rulers, managers and administrators. What is surprising is that what Kautilya taught
about 2,400 years ago is equally, if not more relevant, even today. His vision and farsightedness, revealed in his text,
is a precious gift to mangers and management education.

Importance of Finance Function:

The most important element of the state (business organization), according to Kautilya, is neither the Government
(Administrator) nor the Army (Staff), but the Treasury (Finance). "Spiritual good and sensual pleasure" he wrote
"depend on material well being" (A.1.7.7, 14).
In a sense, the success of business, the well being or yogakshema of the people (Owner, Manager and Employees)
will never occur if the finances are in shambles. This is one point that Kautilya's readers cannot miss, " All
undertakings are dependent first on the treasury" (A.2.8.1.85). Every good in business peace, conquest, order,
proper organization, dharma1 (social responsibility & ethics) and so on depends on the business acquiring wealth
and using it wisely.
After declaring that "material well being alone is supreme" Kautilya continued by saying that, the king
(Owner/Manager) will be happy only when his subjects are happy, and, "Therefore, being ever active, the king
should carry out the management of material well being. The root of material well being is activity, material disaster
its reverse."(A.1.19.35, 34, 47). In this statement we find the key to understanding the importance of the proper
financial management actively and on routine basis. The King can rule (the manager can mange) properly govern
like a concern father, make sure that individuals are not exploited by greed, and bring about Kautilya's vision of
social justice only if there is material prosperity. Thus, Kautilya was not defending endless wealth or economic
development but was saying that the calamity of poverty would defeat any good plan a manager wants to carry out,
for the progress of his state (business). The goals are always "wellbeing and security" (A.8.1.23, 387) from enemies
(various kinds of risk) from both within and without.

Distribution of Profits/Earnings:
Kautilya explains the importance of making a balance among the various uses of profit/income simply and
beautifully. As translated by Chaturvedi (2001) in his book Kautilya's Arthashastra "..He may enjoy in equal
degree the three pursuits of life, charity, wealth and desire, which are inter-dependent on each other. Any one of
these when enjoyed to an excess, hurts not only the other two, but also itself." This is applicable to the management
of business finance as well. The way a business organization distributes and manages its profit determines its future
financial well being. Kautilya holds that wealth and wealth alone, is important, in as much as charity and desire
depend upon wealth for their realization.

Examination and Auditing:

In the Arthashastra, stress has been given both on fraud prevention as well as fraud detection. Kautilya had listed
several ways by which funds are misappropriated. Some of these frauds relevant in today's corporate environment
are as follows:
(a) Falsification with a motive of personal profit.
(b) Misrepresentation (of income received or expense incurred) with a motive of personal profit:
(c) Discrepancies (arising out of willful fraud) in:
- Personally supervised work
- Account heads
- Labour and overhead charges
- Work measurement
Kautilyas knowledge about human behavior is really astounding. He advises about six emotional devils which a
king should avoid and ensure that his cabinet members also avoid. He makes it amply clear that times six emotional
devils do not allow appropriate decision making in any operation. The emotional devils identified by Kautilya are:
Kama (lust), Krodha (anger), Lobha (greed), Mana (vanity), Mada (haughtiness) and Harsh (overjoy). Avoiding
these identified devils leads to a an efficient and effective organization called kingdom. Kautilya looks at external
realities that the government machinery would face. He identified the essentials as the territory of the kingdom, the
population of the kingdom, the organization through which the kingdom is being run and last but not the least, the
unity within the kingdom. According to Kautilya, the essentials of the State should be taken care of through
constituents of the State identified by him.
Kautilya refers to diplomacy as an important element in Nitishastra (foreign affairs). His clarity of thought is evident
from the identification off six attributes of diplomacy. The attributes he talks about are: intelligence, Memory,
Cleverness of Speech, Knowledge of Politics, Morals and Readiness to Provide resources. Though he is not shy of
launching an attack as an external strategy, he also advises the use of diplomacy as a useful strategy to be explored
showing his pragmatic approach to the external realities. He identifies the external threats as the superiority of
strengths of other kingdoms as well as ambitions of other kingdoms. If one replaces the word kingdom with
corporate, Kautilyas advice makes sense in todays corporate turf battles.
Public Governance: