Source: EPW

The economic system where the businesses are run for profits by individuals and not by states is popularly termed as Capitalism. In today’s India we all appreciate the beginning of Capitalism through the Liberalisation of 1991 that brought the Indian economy into growing ways. Many times the West has been thanked for teaching us such a great concept. But indeed, Capitalism was strongly practiced in the Ancient India. Angus Maddison in 2007 quoted “India has been the dominant economic super power for three-fourth of the known economic history” that also finds a mention in the Economic Survey of India 2019–20 Vol 1. The fact that Ancient India was known to account for almost 24.4% of all the World Economy fills us with the curiosity to learn about the economic system of the time.


Arthashashtra by Kautilya has always been regarded as one of the most influential and effective text of the history, especially when it comes to the Economy that was written in Ancient India. The Arthashashtra states wealth creation as a worthy human pursuit through multiple instances. Similarly, the widely regarded Saint and philosopher Thiruvalluvar in his famous Thirukural has quoted “Wealth, the lamp unfailing, speeds to every land; Dispersing darkness at its lord’s command.” in Chapter 76,verse 753. In the same chapter verse 759 he quotes “Make money — there is no weapon sharper than it to sever the pride of your foes.” Also in verse 754 where he quotes “(Wealth) yields righteousness and joy, the wealth acquired capably without causing any harm”. Citing the quotes the Economic Survey of India 2019–20 writes “Thiruvalluvar advocates wealth creation through ethical means”.

Merchants have always been regarded as virtuous men who were also well respected in literature. He (merchant) is often the hero in the animal and human stories of the Panchatantra, Hitopadesha and the Kathasaritsagara, which traveled to the West via the Arabs, some of them becoming part of Aesop’s Fables. In them the merchant is also a figure of sympathy. The Mahabharata speaks of Tuladhara, a respected trader of spices and juices in Varanasi, who surprisingly instructs an arrogant, high Brahmin about dharma and on how to live. Speaking modestly, he compares his life as a merchant to a ‘twig borne along in a stream that randomly joins up with some other pieces of wood, and from here and there, with straw, wood and refuse, from time to time’. The analogy of the twig brings to mind the picture of a real-life trader in a competitive market who has multiple suppliers and buyers, and whose gains and losses, prices are not under his control but depend on the impersonal forces of the market(the “Invisible hand of the market” quoted by Adam Smith in 1776 in the modern era).

Merchants and bazaars, however, emerged even earlier as centers of exchange in the towns of the Indus Valley (3300–1500 BCE) or even in the Neolithic age, soon after Indians first engaged in agriculture and there was a surplus. Early on Dharma placed limits to the power of the rulers. The rulers were meant to make regulations to check malpractices in business and not to run the business. The minister was the one who interpreted the rules and thus there was a careful ‘liberal’ distribution of power. And whenever there were oppression then there were gurus like the Buddha who came and rescued people from such oppression. The Mahabharata states, “The king, O Bharata, should always act in such a way towards the vaishyas [merchants, commoners] so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them’ (Mahabharata,XII.87)”


Born in the India of Post-Independence we tend to think of a capitalist to make rich richer and poor as poorer and blame the markets for being the source of corruption. A large part of the Indian population is seen to believe the fact that Capitalism would not just widen the gap between the rich and poor but will also result in the oppression of the weak and most often coin the term “Crony Capitalism”. But if realized, the corruptions of all kinds have existed mostly where the public officials or the politics has had the discretionary authority over the economic system. Eg. The Bofors scam, The Chara Scam or be it a 2G Spectrum Scam. And as per IOSR Journal of Economics and Finance (IOSR-JEF) titled “An Overview of Indian Economy (1991–2013)” quotes: “The initiation of economic reforms in the 1990s saw India gradually breaking free of the low growth trap which was euphemistically called the “Hindu growth rate” of 3.5 per cent per annum. Real GDP growth averaged 5.7 per cent per annum in the 1990s, which accelerated further to 7.3 per cent per annum in 2000s”. The similar pattern of growth can be seen in the growth of the Newly Industrialized Economies(NIEs) namely Hong Kong, Singapore, Republic of Korea and Taiwan that have entirely eliminated poverty according to the dollar-a-day poverty line.


Ancient India was very rational in implementation of the concept of free markets but always understood the importance of regulations on the business. In Mahabharata, Bhishma instructs Yudhishthira in the Mahabharata about the importance of danda, the ‘rod’ of the state to punish those of low dharma. Even the most peaceful, dharmic ruler must then exercise force. The epic says that when dharma is low in a society, the dependence on danda or intrusive regulation rises. A society where dharma is weak suffers from pervasive corruption of public officials and ineffective public administration. And hence it can also be concluded that Dharma was an important part of the Economic system. By the matter of fact people from all parts of the society were taught dharma uniformly. This ensured a merchant to sell in the market with the confidence of being paid the deserving amount for the goods or service. This also ensured the customer or the consumer of not being cheated by the seller. Hence, the task of Government of the kings of Ancient India was to regulate businesses and not to run them.


Here comes a question that ‘If Ancient India practiced Capitalism and had free markets then why are they alleged of Oriental despotism?‘ To answer this we must look at the origin of this confusion. It was Megasthenes (ca. 350–290 BCE), the Greek ambassador to the Maurya court in India, who created the confusion, suggesting that Indian kings owned the entire land of the country. But Megasthenes was not a reliable reporter, and some of what he wrote was fantastic nonsense, including an account of gold digging ants in India that were the size of foxes. When the British came to India they continued the historical mistake, believing that India too was under ‘Oriental despotism’, and this guided their thinking about land tenure which resulted in terrible consequences. The recent work of historians suggests that property rights to land were generally more secure in India and the major Eurasian agrarian societies — China, Japan, Ottoman Empire, and Europe — than was once believed. It is just the ancient Greek World that used such accounts to flatter themselves of giving freedom to their population.


So, the Liberalization of 1991 is by fact trying to go back to roots which stood almost forgotten after the 40 odd year(1950–1990) period under a system run under influence of Fabian socialism. So a free and appreciative market is need of the hour for wealth creation which can actually help people come out of poverty. So as the facts suggest Capitalism is truly the concept of Ancient India and not imported from the West and we too can repeat the glory that the Ancient Indians had in world economy.


  • IOSR Journal of Economics and Finance (IOSR-JEF) titled “An Overview of Indian Economy (1991–2013)”