India remained a prosperous nation with achievements of the highest order in economic fields since the ancient periods. Studies on the earlier civilizations point out that the country was engaged in diverse economic activities, including trade at the international level, about five thousand years earlier. The earliest known treatises on economics were written here in India for the first time in the world about twenty five centuries back.

Recent studies show India remaining as the economic power house since the beginning of the Common Era continuously for several centuries, making the economy the most sustainable one that the world has ever seen. It was the colonial rule that destroyed the economy resulting in the country becoming poor and underdeveloped. Meanwhile, the Europeans changed the education system and reversed the discourses related to different fields of importance. Like many other nations in the world, India was also made to accept that only the Europe has the true knowledge in economics, finance and other fields.

Independence provided the opportunity to set right the distortions. Voices were raised for changes in the thought process, study of economics and policy making. They are continued to be raised even today. But the ruling and elite sections of independent India remain intent on following the west, for they believe that only the West has solutions to offer. See the contrast in China. Mohanty 1 notes: "Even in

* Dr. P. Kangasabapathi is a professor and author, specializing in the Indian economic, business and management models.

the height of economic reforms in China and spread of western technology as well as cultural forms in recent years the Chinese elite has emphasized "Chinese characteristics" on every front. On the other hand, the Indian elite has shortly assimilated itself with the various waves of Westernization in the spheres of culture, economy and politics."

Post-colonial Indian scholarship in economics and finance remain West-centric, as it is believed that India does not have much to present. As a result there are not enough discourses, debates and research from the Indian points of views. This is in spite of the fact that the country has been fast emerging at the global level with her performing systems. It is really disappointing that the Indian scholarship in economics and finance does not have original thinking to offer.

India has a proud economic history

India is an ancient economy noted for superior economic performance over long periods of time. French excavator Jean-Francois Jarrige 2 noted that by 6000 BCE, Mehrgarh, one of India’s most ancient settlements, had "a veritable agricultural economy solidly established." Indus – Saraswathy civilization demonstrates that the country possessed expertise in town planning, had commercial cities established and was engaged in vibrant trade at the domestic and international levels. Business and trade were being conducted through different forms of organizations, some of which resembling the modern western corporations and partnerships, at least twenty eight centuries before. Khanna 3notes: "The corporate form (e.g., the sreni) was being used in India from at least 800 B.C., and perhaps even earlier, and was in more or less continuous use since then until the advent of the Islamic invasions around 1000 A.D. This provides evidence for the use of the corporate form centuries before the earliest Roman proto-corporations. ……. Moreover, when we examine how these entities were structured, governed and regulated we find that they bear many similarities to corporations and, indeed, to modern US corporations."

Mahabharata provides us the details of economic activities and the responsibility of the state for the overall economic performance and prosperity of the society. The information provided by Kautilya explain the nature and types of economic activities during those periods. The study by Maddison on the performance of different economies in the world during the last two millennia reveals that India was contributing 32.9 per cent to the global GDP, the highest share by a country, during the beginning of the Common Era, i.e. 0 CE 4.

Maddison shows that India’s position as the most dominant economy continued uninterrupted till 1600 CE, when China moved ahead briefly, to be overtaken again by India a century later. There was a remarkable sustainability in the ancient Indian economic systems over several centuries. There is no other economy in the world that showed such a high level of consistent performance in the recorded history of the world. One important feature of the Indian economic system was the fine balance that existed among the different sectors of the economy and the higher performance of all the sectors. This aspect assumes significance as the modern world does not know how to handle the different sectors of the economy.

It is relevant to note that India’s outstanding contributions in various fields were entirely due to her superior performance achieved through the efforts of her people and the native systems that were in place. Subsequently the entry of the European nations changed the entire scenario. They used all sorts of methods to gain an upper hand. The colonial rulers designed and implemented policies that destroyed the well -functioning native systems. As a result, India had to lose her long held status as the premier economy.

Scholarship in Economics and Finance during ancient periods

Mahabharata mentions: "Agriculture, animal husbandry and trade are the very life of the people5." It goes on to elaborate the responsibilities of the King to develop infrastructure and provide the required facilities for people to carry on their economic activities. The King was made responsible to create and ensure a suitable environment for carrying on their vocations without difficulties. The following types of questions were put by elders to the King to make him understand his responsibility towards the economy6: "Have you ensured that the traders in the country, who have to pass through many difficult terrains in order to exchange goods …., are never put to trouble under the burden of oppressive exactions?" "Have you ensured that in every part of the lands large irrigation tanks have been constructed, that these are brimming with water, and that agriculture is not left at the mercy of the gods of rain alone?" All these would not have been possible without a proper understanding of the economy.

We do not have all the details of the ancient Indian economy continuously since the earliest periods to make detailed analyses. We have to remember that the practice of using measures such as GDP and growth rates to study the performance of economies began only during the latter part of the last century. Hence we have to rely only on related evidences for the earliest periods. But fortunately details regarding the economic status and performance of different countries/ regions in the world using the contemporary GDP calculations are now available for the previous two millennia through the works of the OECD economic historian Angus Maddison. Of course, there are many other evidences such as the colonial records, studies by British officials, information provided by foreign observers and local sources that testify the superiority of the Indian economic systems for different periods.

The available evidences reveal the following facts.

1. India is an ancient economy with a very long track record.

2. India remained a pioneer in different fields and excelled in global trade about five thousand years ago.

3. For more than three-fourth of the period during the last two millennia, India was the most powerful economy in the world.

4. India remained a prosperous nation with diverse economic activities and contributions of a very high order from different sectors.

5. India lost her premier status only from the eighteenth century due to exploitation by the Europeans.

6. India is perhaps the most sustainable economy in the recorded history of the world. China also has a very good record in this respect and it remained as one of the top two economies till around the middle of the nineteenth century.

7. All her achievements in the economic sphere were due to her own efforts, without taking undue advantage of others.

8. India emphasized ethical principles and higher values in all economic and business transactions.

The above facts underline that the Indian economy had been functioning with unique features. The economy would not have functioned very successfully for several hundred years continuously under different rulers, without strong fundamentals and proper systems in place. We have often heard about the ‘village republics’, of villages functioning as independent units with a high level of economic self-sufficiency, irrespective of the rulers. Hence Indians must have had strong ‘economic sense’ with a clarity regarding their duties and responsibilities. For such a situation to have existed, our ancestors must have had a clear understanding of economics and should have evolved suitable frameworks to put the ideas into practice.

Arthashastra, written about 2300 years ago, is the first available work on economic science. It is also the first work of its kind in the world. But the author Kautilya was not the originator of the subject, as he himself had acknowledged several treatises of earlier times in his work. Rangarajan 7 notes: "There are in all hundred and twelve places in the text where a number of earlier authorities and opinions held by them are mentioned. .… From a number of quotations and references in later works, we know that there were at least four different schools and thirteen individual teachers of Arthashastra before Kautilya. Unfortunately, all the earlier works are lost and Kautilya’s is the earliest text that has come down to us."

Hence economic science and its study must have started much earlier. Quoting scholars, Rangarajan notes that the development of economic science "may have started around 650 B.C 8." Though the exact period of development is not known, it can be safely assumed that it originated in India with many scholars contributing to its development with diverse opinions over a period of time. Now looking back at the Indian economy against the backdrop of the latest details available before us, we have reasons to believe that a proper understanding of the economy by our forefathers and the development of economic science as study have helped them to perform well to the best of their abilities.

Economic transactions, especially at the larger levels, require the knowledge of finance. Large scale businesses and trade necessarily involve knowledge about the intricacies of finance and the use of financial mechanisms. India being a successful nation with a long history in global trade must have possessed the required knowledge for transactions with other countries. Economic success at the international levels would not have been possible without the knowledge of finance.

Evidences point out that ancient India possessed a higher level of knowledge in finance. In the Mahaabharata, Narada asks Yudhistra 9: "Have you ensured ….. , they ( the cultivators) are offered loans at the rate of one percent? "Such a serious question would not have been directed to the King without any knowledge on loans and interest rates. The following lines from Arthashastra reveal the expertise of ancient India on state finance10: "All (state) activities depend first on the Treasury. Therefore, a King shall devote his best attention to it." "A King with a depleted Treasury eats into the very vitality of the citizens and the country." Arthashastra goes on to discuss different financial aspects related to the affairs of the state and the people, such as sources of revenue for the state, budget, forms of account, audit, deposits, pledges and mortgages, among other things.

Khanna notes that in the ancient Indian sreni form of organizations, there were liability insulations and sharing of assets and liabilities 11. Quoting sources, Das mentions the usage of letters of credit by merchants and earlier version of the modern bills of exchange during the Mauryan periods12. He notes further that during 300 BCE to 200 CE, guilds "served roughly speaking the functions of modern banks.13" All these indicate a high levels of expertise in finance during the ancient periods.

Colonialism, Indian economy and Indian Economics

The following table presents data relating to the share of India in global GDP.

Share of India in World GDP

(percent of the world total)

1700 1820 1870 1913 1950

24.4 16 12.2 7.6 4.2

Source: Maddison, 2003, p.263

The above figures show the drastic decline of the Indian economy due to the destruction by the colonial and alien forces. The native systems that were built and nurtured by our ancestors over several centuries were destroyed. We were told that our beliefs, customs, traditions, ways of life and thoughts were inferior to that of theirs. The introduction of the new education system facilitated the process quickly. West-centric ideas were inculcated at all levels. The educated and the elite began to look at India through the western glasses, resulting in the loss of original thinking.

Independent India depends on the West for economic policies

Independence provided the opportunity to set right the distortions and begin a fresh lease of life based on the ethos and experiences of this age-old civilization that remained a pioneer to the rest of the world and conquered nations through her native thoughts and higher achievements. But unfortunately the ruling establishment of independent India preferred the socialistic approach. Socialistic ideology got developed in the west during the nineteenth century based on their limited world views as a reaction to the conditions prevailing in Europe. It is not that our policy makers were completely unaware of an Indian approach. Personalities like Mahatma Gandhi advocated India-centred approaches for a long time. Nationalists such as Ranade were vehemently opposing the policies of Europeans for India.

Ultimately the policies that were adopted by the state between the 1950s and 1980s could not give the expected results. Meanwhile communism collapsed in the then USSR leading to the breaking up of the country into many pieces. The advocates of western capitalism led by the US seized the opportunity to propagate that theirs was the only ideology suitable for progress. Much of the elite and educated sections in India were also pitching for the market centric approach. As a result for the second time after independence the policy makers went in for the other western model, without taking into consideration the background, priorities and preferences of the nation.

The results are there for all to see. After more than sixty years of independence, the country is not able to fulfill even the basic minimum facilities for all her citizens. Thousands of farmers are committing suicides every year continuously during the recent period. Employment generation has been going down in spite of higher growth rates. The consumer culture has begun to intrude the lives of critical sections of the society. This is the situation in the nation that possesses enormous strengths in terms of her experience, culture, resources and potential.

Status of Scholarship in Economics in Independent India

The critical sections of the country that dominate the economic discourse and policy making remain dependent on the west. The position continues in spite of the repeated failures of the western paradigms and approaches in their own birth places and practicing grounds. As a consequence, the experts from the western world itself have begun to admit the limitations of their theories during the recent years. Nobel laureate Paul Krugman 14 writes: "…. much of the past 30 years of macroeconomics was spectacularly useless at best and positively harmful at worst."

But still the dominant Indian scholarship depends on the west for their inputs and opinions. It is mostly those who have had their education in western universities who dominate the leadership positions in the premier educational institutions and policy making in India. The position in the top ranking institutes of management is much worse. They expect western degrees for appointment in senior positions. This situation continues even after sixty four years of independence.

Meanwhile linkages with western institutions have increased during the recent periods. One interesting trend is they themselves are now coming in to India to establish linkages. The numbers of Indians as members of faculty in the western academic institutions have been increasing. More number of them are beginning to occupy senior positions, especially in areas such as management.

Lack of appreciation of India’s achievements

There is a complete lack of appreciation of India’s achievements. This is because we neither have a proper understanding of the economic history of India nor an idea about the contemporary functioning Indian models. We do not even have the basic idea that a country with such a long history would not have survived so long without economic fundamentals. Kumarappa 15noted: "The old civilizations of Egypt, Babylon, Greece and Rome are no more to tell their tale. ….. In striking contrast to these, the equally old or even older civilizations of China and India, which were founded on altruistic and objective values, testify even to this day, their vitality and other attributes of permanence and non-violence in their civilization."

There has been no initiative to study and understand the economic history from an Indian perspective as our scholarship takes it for granted that we do not have a past worth studying. This is the height of apathy, lack of appreciation and even a kind of ‘negationism’ that permeates the thought process of our scholars. But they meekly accept whatever is presented to them, when it is concerned with the claims of superiority of the west, specifically in fields related to economics and finance as they are "developed" and "rich".

Much of the details relating to ancient India that we have gathered in the recent periods have come through the western scholarship. We do not have any role in their initiatives. It is all the more unfortunate that we do not even discuss their findings openly, as most of us do not have the objectivity and confidence to accept them. Maddison’s findings have given new image for India and China, validating their long held positions and placing them at the centre stage in the economic history of the world, paving way for a true understanding of the global economic order. How many universities in India have organized programmes presenting such facts for discussion?

As a result, there is no idea about the Indian thought process in economics, in spite of her long economic history and achievements over all these years. Hence, Gupta16 notes: "Indian economic thought is relatively little known either in India or elsewhere." So we are producing graduates and scholars who are tutored through the western views and models, negating India’s past. There is a complete failure on the part of Indian scholarship regarding economic history.

Not aware of contemporary functioning systems

It is even more unfortunate that the Indian scholarship continues to look at the contemporary economic systems through the western glasses. There remain the two schools of scholars, namely those who subscribe to the leftist approach and those who support the market philosophy. The Marxian ideology has failed worldwide. The market ideology has been facing serious crisis, losing its validity. It has created more problems at different levels, threatening the very meaning of a peaceful life in the society. Experts point out that the market fundamentalist approaches disturb families, societies, nations and the environment. Marglin17 notes: "But over the past four hundred years, the ideology of economics has fostered both the self-interested individual and the market system, and has undermined, and continues to undermine the community."

Both the above approaches are two sides of the same coin and the adherents of both the schools follow the same methodologies for their studies. Bhole18 notes: "Both of them have been engendered and nursed by the same mechanistic Western world-view, Western value system, Western life-view ( life style) which lacks the holistic and ecological perspective. This world view has been developed by Newton, Descartes, Calvin, Darwin, Freud, Smith, Marx and other scholars of the same ilk. Both the philosophies are the product of the same age namely, the age of "enlightenment", "renaissance", "rationality", and industrial revolution….. The mainstream economic theories of utility, margin, utilitarianism, division of labour, labour theory of value, falling rate of profit, disutility of labour, and so on constitute the basis for both of them. … They use the same mode of analysis involving binary, either/or, mutually exclusive, dualistic, reductionist, positivistic, and fragmentary thinking, concepts and methods. Both of them emphasize the necessity of the quantitative measurement or operational verification of the values."

In spite of the failures of both the approaches, the scholars of the two schools refuse to acknowledge the realities. It is a fact that with all the limitations, India has been making progress, in spite of the confusions and contradictions at the policy making levels. But the scholars are still looking to the west, not knowing as to what should be the proper approach for India. The country has been growing, already emerging as the third largest economy in the world. It is interesting to note that both the above schools make claims that the growth of the economy has been due to their prescriptions, little realizing that this country has enormous strengths and moving power that remain invisible to the naked eyes.

Objective studies at the ground level reveal that Indian economy has unique fundamentals 19. Factors such as the family system, community orientation and cultural traditions play a huge role propelling the economy to move forward. Higher levels of saving, self-employment base, high levels of entrepreneurship and employment generation are not due to inputs from higher educational institutions or encouragement through the policies of the state, but due to the initiatives and enterprise of people from the ordinary backgrounds. The Indian scholarship is not inclined to study them, as they hesitate to look at the functioning economy from broader and local perspectives.

All countries are not the same. One cannot truly understand Asia, Africa and Gulf through the European and the US centric views. It is all the more true for India, with people from diverse backgrounds, habits and practices. While arguing against the Euro centric policies for India, Ranade, himself not an economist by training, voiced his concern long back, based on his understanding of the situation: "With us an average individual man is, to a large extent, the very antipodes of the economical man. The family and the caste are more powerful than the individual in determining his position in life. Self- interest in the shape of the desire of wealth is not absent, but it is not the only nor principal motor. The pursuit of wealth is not the only ideal aimed at. There is neither the desire nor the aptitude for free and unlimited competition except within certain predetermined groves or groups. Custom and State regulation are far more powerful than competition, and status more decisive in its influence than contract". 20

In this context it is interesting to note that many western universities, business schools and research bodies are taking interest to study the Indian business and corporate sectors, during the recent years. Even these studies, with all limitations, have pointed out some of the underlying strengths of the Indian economy. The ‘functioning economy’ of contemporary India remains in many ways different from the text book economy that our scholars and policy makers study and use for discourses and decision making purposes. But it remains untouched, in spite of India’s continuous progress during the past six decades, withstanding the global turmoils and policy failures.

Western financial discourse completely dominates the Indian scholarship with the ascendancy of the market fundamentalism in the west, particularly the US, the financial markets began to dominate the economic system. The academic system introduced newer courses in finance. Simultaneously many new theories and models came into existence. With the result financial markets became perhaps the most researched field in economics since the 1970s. Most of the Nobel prizes in economics during the 1980s and 1990s went to those who participated in the study of financial markets. Those studies were ‘exported’ to the rest of the world through their courses, text books and other methods.

Business schools and universities in India, with the ‘west is best’ mindset, accepted those theories without questioning. Even now, institutions of higher learning compete among themselves to offer specialized finance courses that discuss the western models. It is considered a privilege to teach and study such courses. As a result almost all the colleges in the country, including many of those situated in rural areas, offer ‘modern finance’ courses in their curriculum.

India remains one of the financially strong nations. India has one of the high saving rates in the world. Almost the entire investments required for businesses in the non-corporate sector are generated locally by the entrepreneurs though their network of families and communities. The role of foreign investments is very less in the economy. India is one of the very few countries that withstood the recent financial crisis, even when most of the richer countries faced severe difficulties. All these are due to the unique financial systems prevailing in India.

But our scholars do not take steps to study and understand them. Much of their expertise revolves around stock markets, leaving a very vast area outside the scope of study. So we produce reports after reports on a few topics such as ‘efficient markets.’ In this connection, it may be relevant to reproduce two sentences of Munger, the Vice-Chairman of the Berkshire Hathaway, the most successful investment company in the world, from his convocation address 21. They bring out the limitations of the much acclaimed theories related to the financial markets and their lack of relevance at the practical level. To quote: "Well, Berkshire’s whole record has been achieved without paying one ounce of attention to the efficient market theory in its hard form. And not one ounce of attention to the descendants of that idea, which came out of academic economics and went into corporate finance and morphed into such obscenities as the capital asset pricing model, which we also paid no attention to."


India has a very long and successful economic history, with most probably the best economic model the world has ever experienced. Her understanding and expertise in economics and related subjects is critically important for us, as we can learn much from earlier experiences. Similarly we need to have a correct understanding of the contemporary economic functioning from the nation-centric perspectives. But unfortunately the scholarship on economics and finance remain west centric. There have been no worthwhile initiatives, not even sincere attempts, for discourses, debates and research on the suitability of the western thoughts and the need for India-specific approaches, as there is a near-total failure on the part of Indian scholarship in Independent India. It may be relevant to recall here that during freedom struggle, the economic thinking of the nationalists went almost towards Indian economic thoughts. But they "could not grapple with theory per se" as they were not professional economists22. They challenged the western classical economics primarily because the rulers used it to oppose the nationalist demands.

The global economic and financial systems are in serious crisis. The western theories stand exposed. At this juncture, we are fortunate that India has strong fundamentals and functioning systems. The Indian scholarship has miserably failed and let down the nation. It is time that it realized its blunders and shifted its focus, before it is too late. For our continued survival as a great nation, we have to maintain our identity, which is closely linked to the economic thoughts and behavior of our people.


1. Mohanty, Manoranjan, "Colonialism and the Discourse in India and China" in Tan Chung, In the Footsteps of Xuan Zang: Tan Yun-Shan and India, Indira Gandhi National Centre for Arts, New Delhi, 1999

2. Jean-Francois Jarrige quoted in Michel Danino, ‘Indian History and Civilization: Recent Discoveries and Their Significance’, Paper presented at the National Symposium on Philosophy and Practice of Education for India, Calcutta, Nov.2004

3. Khanna, Vikramaditya S., ‘The Economic History of Corporate Form in Ancient India’, 1997.

4. Maddison, Angus, The World Economy – A Millennial Perspective, Overseas Press (India) Private Limited, New Delhi by arrangement with the Organization for Economic Cooperation and Development 2003, p.263

5. Srimahabharatam, Gita Press, Gorakhpur quoted in Bajaj J and Srinivas M.D., Annam Bahu Kurvita, Centre for Policy Studies, Chennai, 1996, p.121

6. Quoted in Bajaj J and Srinivas M.D., op.cit., pp.121-122

7. Rangarajan, L.N., Kautilya- The Arthashastra, Penguin Books, New Delhi, 1992, pp.3-4.

8. Rangarajan, L.N., op.cit.p.4

9. Quoted in Bajaj J and Srinivas M.D., op.cit., p.122

10. Rangarajan, L.N., op.cit., p.222

11. Khanna, op.cit., p.26

12. Das, Santosh Kumar Das, The Economic History of Ancient India, Vohra Publishers and Distributors, New Delhi 1980, p.104

13. Ibid., p.132

14. Krugman, Paul., ‘What Went Wrong With Economics’, quoted in The Economist, July 16,2009

15. Kumarappa, J.C., Economy of Permanence, Sarva Seva Sangh Prakashan, Varanasi, 1997, p.40

16. Dasgupta, Ajit K., A History of Indian Economic Thought, Routledge, London, 2003, p.3

17. Marglin, Stephen A., The Dismal Science: How Thinking Like An Economist Undermines Community, Oxford University Press, New Delhi, 2009,p.1

18. Bhole, L.M, Essays on Gandhian Socio-Economic Thought, Shipra Publications Delhi, 2000, pp.47-48

19. Kanagasabapathi,P., Indian Models of Economy, Business and Management, PHI Learning Private Limited, New Delhi, 2012

20. Ranade quoted in Das Gupta, Ajit K., op.cit., pp.112-113

21. Munger, Charles ., "Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs", Herb Kay Undergraduate Lecture, University of California, Oct 3, 2003

22. Bipan Chandra, The Rise and Growth of Economic Nationalism in India, Anamika Publishers and Distributors Ltd., New Delhi, 2004, p.350