rate of interest in ancient india

15 Pages·2015·1.04 MB·English

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: [phone]
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

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1 http://en.wikipedia.org/wiki/interest_rate
2 http://en.wikipedia.org/wiki/Sustainable_development
3 http://en.wikipedia.org/wiki/financial_inclustion
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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,
2
redistribution of wealth during a famine) and the collective ethics that hold a society together.

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1 http://www.britannica.com/EBchecked/topic/363055/Manu-smriti
2 http://www.britannica.com/EBchecked/topic/36913/Artha-shastra
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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 & Ksatriya while compare with Vaisya & Shudra ,
(24% p.a) (36% p.a) (48% p.a) (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 textsaid Manu. By this statement, it is clear that, only Vaisya &
Shudra were given authority to lend money at interest.

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2
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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

interest (8.153)1 in Sanskrit text 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
which is due 2 in Sanskrit text
. (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
(such) a pledge for a very long time, give or sell it (8.143)3 in Sanskrit text. 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.

(8.166) 4 in Sanskrit texteven 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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