RATE OF INTEREST IN ANCIENT INDIA: A WAY TOWARDS FINANCIAL INCLUSION AND SUSTAINABLE DEVELOPMENT WITH SPECIAL REFERENCE TO MANU SMRITI AND KAUTILYA’S ARTHASHASTRA
RANJAN B U RESEARCH SCHOLAR, MANDAVYA RESEARCH AND DEVELOPMENT CENTRE, MANDAVYA FIRST GRADE COLLEGE, MANDYA DIST. KARNATAKA, INDIA
1 From, RANJAN B U Research Scholar Mandavya Research & Development Center Mandavya First Grade College, Mandya Email: [email protected] Mobile: 8105356290 To, The Organizing Secretary Dept. of P G Studies in Commerce University College Mangalore – 575001
Respected Sir, Sub: Submitting the original abstract and full paper for National Conference: reg
With reference to the subject cited above, I hereby submitting my original abstract and full paper titled RATE OF INTEREST IN ANCIENT INDIA – A WAY TOWARDS FINANCIAL INCLUSION AND SUSTAINABLE DEVELOPMENT WITH SPECIAL REFERENCE TO MANU SMRITI AND KAUTILYA’S ARTHASHASTRA, to IBMT – 2015 UGC SPONSORED Three day National Conference on “Indian Banking: managing transformation in the era of Globalization & information Technology”, sub theme ‘Financial inclusion’ . The Conference will be hosted in your esteemed Institute on 6th 7th & 8th January 2015. I kindly request you to accept the paper and oblige the same Thanking you,
Always yours at the service of needy, DATE: 6/1/2015 PLACE: MANDYA (RANJAN B U)
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RATE OF INTEREST IN ANCIENT INDIA: A WAY TOWARDS FINANCIAL INCLUSION AND SUSTAINABLE DEVELOPMENT WITH SPECIAL REFERENCE TO MANU SMRITI AND KAUTILYA’S ARTHASHASTRA
ABSTRACT
In the matter of economic development of our country, it should be based on our own basic philosophy and structure laid down by our ancestors from the time immemorial. Our smritis & darmashastras unanimously declare the concept of TRIVARGA SIDDHANTA; say Dharma (virtue) Artha (wealth/economy) & Kama (desires). By studying these texts, astonishingly, I found the concepts of charging interest in ancient India. Among which Manu smriti & kautilya’s arthashastra inspired me to develop this concept.
The Manu’s conception on rate of interest based on Varna system (division of society based on work) which was surprisingly resulted in financial inclusion, but kautilya’s arthashastra concerned more on administrative aspects than that of personal laws, which give raises to sustainable development in those days.
This paper explores the ancient texts (manu smriti and kautilya’s arthashastra) & its perception on the rate of interest in ancient India which leads to financial inclusion and sustainable development. Methodology is used to present this paper is called hermeneutics, which comprises of studying, understanding and interpreting the ancient texts. It is a qualitative research methodology used in social science. Eventually an abbreviated attempt is exercised to present its modern relevance along with inference.
Keywords: Rate of Interest, Ancient India, Financial Inclusion, Sustainable Development, Manu Smriti & Kautilya’s Arthashastra
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INTRODUCTION:
“It seems to me that before we can appreciate Swaraj, we should have not only love but passion for Swadesi. Every one of our acts should bear the Swadesi stamp. . . There could be several methods to improve our economy and commerce of the country. It requires expert planning, but * it should be rooted in Swadesi thought ”, It's, indeed, at this confluence, there is a need to go back and to study our ancient scriptures to rejuvenate provincially in all affecting strata. However, at the same time, Manu Smriti & Kautilya’s Arthashastra will also provide remarkable references and practical ideas to improve our country’s economy and commerce.
Heretofore, the problems of modernism can seek the solution from Ancientness. It can get pioneer and complex remedies. Notably, I found some of the practices and laws relating to Rate of Interest in ancient India. I'm delighted to develop the concept of charging Interest in ancient India which results in financial inclusion and sustainable development with special reference to Manu Smriti & Kautilya’s Arthashastra.
The interest rate is a percentage of principal paid a certain number of times per period for all periods during the total term of the loan or credit. Surprisingly, Manu’s Rate of Interest (ROI) is based on varna System, a quadruple division of society based on an occupation performed, it is not to be confused with the much coarser Cast System in India. Unlike Manu’s Rate of Interest, Kautilya in his Arthashastra gave significance to the level of risk involved or the purpose of the loan rather than the socioeconomic status of the borrower. The imposition of fines for disputes in associated with ROI, Invalid surety of minor and Exception from the payment of interest under different circumstances were expressed under the conceptual framework in detail.
______*Said - Dr. M Rama Jois, Former Chief Justice of Punjab & Haryana High Court, Former Governor of Jharkhand & Bihar, in national conference on 18th November 2004 at Center for Inter-Disciplinary Studies and Research in Sanskrit, Canara College, Mangalore.
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LITERATURE REVIEW:
Charles Waldauer, William J Zahka & Surendra Pal (1996) ‘Kautila’s Arthashastra: A neglected Precursor to classical Economics’, demonstrated the kautilya’s views on international trade, principles of taxation, labor theory of values. They adversely concluded that, the kautilya’s arthashastra is another example of occidental philosophy through suffering from not having access to oriental philosophical thought.
Michael liebig (2014) ‘ kautilya's arthaśāstra: a classic text of statecraft and an untapped political science resource’, states that, Kauṭilya's ideas and concepts in the Arthaśāstra represent an untapped reservoir of ideas and concepts that can be used to tackle political science puzzles. That goes both for the history of political thought and for theory building with respect to current questions and puzzles of political science, including International Relations theory. The analysis and explication of the central ideas and concepts of the Kauṭilīya Arthaśāstra with the help of 'covariant' or structurally homologous categories of political science should be a – long overdue – contribution to introducing a 'de-orientalized' Kauṭilīya Arthaśāstra in the political science discourse internationally.
Nanda Lal Darnal, article, ‘ Kautilya's Arthashastra and Economic Development: An Analytical study on state's Role in Modern Perspective’ accomplished that, There are many elements of modern economics in Arthashastra but only a few aspects can be mentioned here. It was a valuable guide to political economy in its time and provides us with privileged insights in to the Mauryan economic system and society. With careful reading, one can glean from it many economic wisdom of relevance to our times, and it certainly can be used to illustrate several modern economic ideas.
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OBJECTIVE OF THE STUDY:
i. To reveal the concept of rate of interest in ancient India. ii. To divulge Manu’s rate of interest and its connection with financial inclusion. iii. To study Kautily’s rate of interest in his Arthashastra and how it results in sustainable development.
SCOPE OF THE STUDY:
This paper narrowly focuses on versatile aspects of Rate of Interest in ancient India based on Manu Smriti & Kautilya’s Arthashastra and its stages, imposition of fines for disputes in associated with ROI, Invalid surety of minor and Exception for the payment of interest under different circumstances.
METHODOLOGY:
This paper is based on a qualitative research methodology called Hermeneutics. Hermeneutics are related to the name of the Greek god Hermes, in his role as the interpreter of the messages of the gods. Current context, hermeneutics can be described as the interpretation and understanding of ancient literature and religious texts. Hermeneutics is widely applied in many fields of social science such as philosophy, religion, theology, law, sociology, and also international relations. Under this methodology, the references or notes were stated in its original text where ever it requires.
LIMITATIONS:
No research methodology is perfect with any drawback. The limitation of the study includes:
i. The study is micro in nature restriction only to the concept of ROI in ancient India. ii. The study restricted its references only to Manu Smriti & Kautilya’s Arthashastra. iii. The study is at an introductory stage and not addresses the deepest and most critical aspects in detail.
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CONCEPTUAL FRAMEWORK
TERMINOLOGY – THE DOCTRINE OF TERMS:
I. RATE OF INTEREST : An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors). Specifically, the interest rate is a percentage of principal paid a certain number of times per period for all periods during the total term of the loan or credit. Interest rates are normally expressed as a percentage of the principal for a period of one year; sometimes they are expressed for different periods like for a month or a day. Different interest rates exist parallel for the same or comparable time periods, depending on the default probability of the borrower, the residual term, the payback currency, and many more determinants of a loan or credit. 1
II. FINANCIAL INCLUSION : Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. It is argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion public policy.2
III. SUSTAINABLE DEVELOPMENT : The United Nations World Commission on Environment and Development (WCED) in its 1987 report Our Common Future defines sustainable development: "Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” Broadly defined, sustainable development is a systems approach to growth and development and to manage natural, produced, and social capital for the welfare of their own and future generations. The term sustainable development as used by the United Nations incorporates both issues associated with land development and broader issues of human development such as education, public health, and standard of living.3
______1 http://en.wikipedia.org/wiki/interest_rate 2 http://en.wikipedia.org/wiki/Sustainable_development 3 http://en.wikipedia.org/wiki/financial_inclustion Page | 7
IV. MANU-SMRITI : Manu-smriti, (Sanskrit: “Laws of Manu”) traditionally, the most authoritative of the books of the Hindu code (Dharma-shastra) in India. Manu-smriti is the popular name of the work, which is officially known as Manava-dharma-shastra. It is attributed to the legendary first man and lawgiver, Manu. In its present form, it dates from the 1st century BCE. The Manu-smriti prescribes to the Hindu his dharma—i.e., that set of obligations incumbent on him as a member of one of the four social classes (varnas) and engaged in one of the four stages of life (ashramas). It contains 12 chapters of stanzas, which total 2,694. It deals with cosmogony; the definition of the dharma; the sacraments (samskaras); initiation (upanayana) and study of the Vedas (the sacred texts of Hinduism); marriage, hospitality, obsequies, dietary restrictions, pollution, and means of purification; the conduct of women and wives; and the law of kings. The last leads to a consideration of matters of juridical interest, divided under 18 headings, after which the text returns to religious topics, such as donations, rites of reparation, the doctrine of karma, the soul, and hell.1
V. ARTHASHASTRA :
The Arthashastra is an ancient Indian treatise on statecraft, economic policy and military strategy, written in Sanskrit. It identifies its author by the names "Kauṭilya" and "Vishnugupta" both names that are traditionally identified with Chanakya (c. 350–283 BCE), who was a scholar at Takshashila and the teacher and guardian of Emperor Chandragupta Maurya, founder of the Mauryan Empire. The text was influential until the 12th century, when it disappeared. It was rediscovered in 1904 by R. Shamasastry, who published it in 1909. The first English translation was published in 1915. Centrally, Arthaśāstra argues how in an autocracy an efficient and solid economy can be managed. It discusses the ethics of economics and the duties and obligations of a king. The scope of Arthaśāstra is, however, far wider than statecraft, and it offers an outline of the entire legal and bureaucratic framework for administering a kingdom, with a wealth of descriptive cultural detail on topics such as mineralogy, mining and metals, agriculture, animal husbandry, medicine and the use of wildlife. The Arthaśāstra also focuses on issues of welfare (for instance, redistribution of wealth during a famine) and the collective ethics that hold a society together.2
______1 http://www.britannica.com/EBchecked/topic/363055/Manu-smriti 2 http://www.britannica.com/EBchecked/topic/36913/Artha-shastra Page | 8
MANU’S RATE OF INTEREST:
The law of Manu (manu smriti), is the most important and earliest metrical work which authorizes the practice of charging interest on borrowing. Surprisingly, Manu’s Rate of Interest (ROI) is based on varna System, a quadruple division of society based on an occupation performed, it is not to be confused with the much coarser Cast System in India. The scheduled ROI is established on the grounds of social states of a borrower rather than the level of risk involved or the purpose of the loan.
Manu declared, just two in the hundred, three, four, and five (and not more), he may take as monthly interest according to the order of the varna1 in Sanskrit text ( 8.142)
To Brahmana (The Thinker or Scholar) was charged – 2 % p.m – 24% p.a To Ksatriya (The Leader) was charged – 3% p.m – 36% p.a To Vaisya (The Profit Minded) was charged – 4% p.m – 48% p.a and To Shudra (The Worker) was charged – 5% p.m – 60% p.a
If we look at the above facts, Manu’s differential & High ROI give rise to the predominant question say, why it is discriminatory in nature with high rate of interest and will it results in financial inclusion?
Reflecting the capability for correct and valid reasoning, Manu did not charged much for
Brahmana (24% p.a) & Ksatriya (36% p.a) while compare with Vaisya (48% p.a) & Shudra (60% p.a), because Brahmana, The thinker, who is expected to devote his lifetime for learning and teaching; Likewise Ksatriya, The Leader, who is also expected to devote his lifetime by offering protection to the society, They never carry out any such business which results in Profit. Neither a Brahmana, nor a Kshatriya must lend (money at) interest; but at his pleasure (either of them) may, in times of distress when he requires money) for sacred purposes, lend to a very sinful man at a small interest (10.117)2 in Sanskrit text said Manu. By this statement, it is clear that, only Vaisya & Shudra were given authority to lend money at interest.
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We think that the Manu’s ROI is very high, logically, Manu ordains not take interest beyond the year, nor such as is unapproved, nor compound interest, periodical interest, stipulated interest, and corporal
1 in Sanskrit text interest (8.153) one of the interpretation of manu Smriti states that the interest payable beyond one year is prohibited, even if the money due is paid by the debtor after 2 or 3 years. Interest beyond one year was considered as redundant. If the debtor is unable to pay a debt (at the fixed time), wishes to make a new contract, may renew the agreement, after paying the interest
2 in Sanskrit text which is due. (8.154)
Manu’s ROI results in financial inclusion by charging a minimum rate of interest to Brahmana & the Ksatriya class of people whose socioeconomic status were speculative on those days. He enacts that the interest should not take beyond the year. In case of beneficial pledge (i.e. One from which profit accrues, has been given), he shall receive no interest on the loan; nor can he, after keeping
3 in Sanskrit text (such) a pledge for a very long time, give or sell it (8.143) . In order to justify the Vaisya & Shudra class of people he made a rule that neither a brahmana, nor a kshatriya must lend money at interest by which only the vaisya & shudra classes were authorized to lend money for interest and to make reasonable profit.
Manu strongly held the view that, if the debtor is dead and the money borrowed was expended for the family, it must be paid by the relatives out of their own estate even if they are divided.
4 in Sanskrit text (8.166) even the present banking practices can cope with it. The Manu’s rate of interest based on the grounds of social states of a borrower rather than the level of risk involved or the purpose of the loan pragmatically results in financial inclusion by delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of those days.
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1 2 3 4
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KAUTILYA’S RATE OF INTEREST:
Unlike Manu’s Rate of Interest, Kautilya in his Arthashastra gave significance to the level of risk involved or the purpose of the loan rather than the socioeconomic status of the borrower. Kautilya does not give importance to varna System and he hasn't linked the interest rates with Varna. We get fewer references with regard to ROI in Kautilya’s Arthashastra. The annual interest rate structures1 for various categories of borrowers in Kutilya’s Arthashastra are to be:
For non-commercial loans - 15%
For less risky commercial loans - 60%
For risky commercial loans - 120% and
For foreign trade - 240%
If we closely look at the above chart, it is found that the rate of interest on loans for foreign trade (240% per annum) was much higher than that of loans for internal trade. The most feasible explanation for the highest rate of interest for foreign trade is the concern for sustainable development along with the high risk factor used to play a dominant role in those days. In Kautilya’s Arthashastra there is an additional focus on maintain and to improve the planetary resources for use by future generations.
In case of interest on loan against food grains, Kautilya states that, Interest on grains in seasons 2 of good harvest shall not exceed more than half (<50%) when valued in money , further he allows, Interest on stocks (prakshepa) shall be one-half of the profit and be regularly paid as each year expire3, This shows a remarkable concern of Kutilya upon country’s economy. Kautilya never concerned much with the human laws, like Manu, but he gave significance on the administrative aspects of Muryan Kingdom.
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1. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 250 2. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 250 3. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 250
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IMPOSITION OF FINE:
Both Manu smriti and Kautilya’s Arthashastra will impose fines for the disputes relating to the rate of interest under various circumstances, which are stated below:
i. A debt being admitted as due, the defendant shall pay five in the hundred (5%) as a fine, if it be
denied and proved twice as much.1 in Sanskrit text ii. Stipulated interest beyond the legal rate, being against the law, cannot be recovered; they call that a usurious way of lending; the lender is in no case entitled to more than five in the hundred.2 in Sanskrit text iii. A person claiming interest when it is not due, or representing as principal the total amount of his original principal and the interest thereon shall pay a fine of four times the amount under dispute (bandhachaturgunah).3 in Sanskrit text iv. A creditor who sues for four times the amount lent by him shall pay a fine of four times the unjust amounts. Of this fine, the creditor shall pay ¾ths and the debtor ¼th.4 in Sanskrit text v. If a creditor refusing to receive the payment of his debt shall pay a fine of 12 panas.5 in Sanskrit text
Minor’s surety is invalid:
Kautilya states that, the minor’s surety is invalid (na prátibhávyamanyat), minor’s surety is inefficient (bálaprátibhavyam asáram6= surety of a minor is not strong), Even today, we can find the same practice in current banking transactions.
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1. 2.
3. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 250
4. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 250 5. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 250 6. Shamasastry, R. (1961) Translator. ‘ Kautilya’s Arthasastra’ Mysore Printing and Publishing House, Mysore- chapter XI Recovery of Debt – page no. 251
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EXEMPTION FROM THE PAYMENT OF INTEREST:
i. Interest on debts due from persons who are engaged in sacrifices taking a long time (dírghasatra), or who are suffering from disease, or who are detained in the houses of their teachers (for learning), or who are either minors or too poor, shall not accumulate.
ii. If the creditor’s refusal to receive the payment due to some reasonable cause, then the amount free of interest for subsequent time shall be kept in the safe custody of others.
iii. Debts neglected for ten years, except in the case of minors, aged persons, diseased persons, persons involved in calamities, or persons who are sojourning abroad or have fled the country and except in the case of disturbances in the kingdom (rájyavibhrama), shall not be received back.
iv. Cultivators or government servants shall not be caught holding off for debts, while they are engaged in their duties or at work.
v. A wife, though she had not heard of the debt (pratisrávaní), shall not be caught holding off for the debt contracted by her husband, excepting in the case of herdsmen and joint cultivators (gopálakárdhasítikebhyah). But a husband may be caught for the debt contracted by his wife.
vi. Debts contracted from each other by either a husband or wife, either a son or a father, or by any one among brothers, of undivided, interests shall be irrecoverable.
vii. In case of beneficial pledge (i.e. one from which profit accrues, has been given), the creditor shall receive no interest on the loan; nor can he, after keeping such a pledge for a very long time, give or sell it.1 in Sanskrit text
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FINDINGS:
i. It is found that, the Manu’s ROI is based on Varna System having differential and high rate of interest for quadruple classes of people which results to financial inclusion.
ii. Kautilya in his Arthashastra, while charging interest rate, gave significance to the level of risk involved or the purpose of the loan rather than the socio-economic status of the borrower. This gave rise to sustainable development of country’s economy of those days.
iii. The imposition of fines for disputes in associated with ROI, Invalid surety of minor and Exception from the payment of interest under different circumstances were found out.
SUGGESTION:
It is suggested to embark on mysterious study and interpretation of our sacred scriptures, in order to enhance the ROI and allied concepts. It is also suggested to consider our ancient ideology in policy and decision making process to improve our country’s economy and commerce rooted with Swadesi thoughts.
CONCLUSION:
Indeed, both Manu smriti and Kautilya’s Arthashastra provide extensive references on the concept of Rate of Interest in ancient India having the concern for financial inclusion and sustainable development. Even today, the banking sector can effectively adopt and practice some of the ideas on Rate of Interest bestowed by Manu and Kutilya.
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Eventually, I would like to conclude my paper by citing Swami Vivekananda: “The debt which the world owes to our motherland is immense. Taking country with country, there is not one race on this earth to which the world owes so much as to the patient Hindu(CW. 3.105) The more, therefore, the Hindus study the past, the more glorious will be their future, and whoever tries to bring the past to the door of everyone, a great benefactor to his Nation. The degeneration of India came not because the laws and customs of the ancients were bad, but because they were not allowed to be carried to their legitimate conclusion (CW. 4.324)”
REFERENCES:
i. Shamasastry, R. (1961) Translator. Kautilya’s Arthasastra, PDF format , Mysore Printing and Publishing House, Mysore. Page no. 250-254
ii. Charles Waldauer, William J Zahka & Surendra Pal (1996) Kautila’s Arthashastra: A neglected Precursor to classical Economics, Indian Economic Review, Vol.XXXI, No.1, 1996, pp. 101-108 iii. Dr. N K Thingalaya(2006) Rural Credit In India: Its Concepts Evolution And Relevance, in Economic and Commerce: ancient concept and modern relevance, page no. 90-98. iv. Michael liebig (2014) ‘ kauṭilya's arthaśāstra: a classic text of statecraft and an untapped political science resource’ heidelberg papers in south Asian and comparative politics, working paper no. 74 July 2014
v. Nanda Lal Darnal, article, ‘ Kautilya's Arthashastra and Economic Development:An Analytical study on state's Role in Modern Perspective ‘ vi. Ratan Lal Basu (2011) “ Kautilya’s Arthasastra (300 B.C.): Economic Ideas” Ratan Lal Basu Smashwords Edition Smashwords Edition, License Notes.
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