Pragmatics is the study of meaning beyond the literal meaning of words and their composition into phrases and clauses, encompassing in very broad terms much of the ‘use’ of language in the real world. The distinction between the literal or essential meanings of words and their ‘use’ played a hugely important role in the semantic theorizing of the Indian tradition. The tradition distinguishes a number of relevant concepts, in particular: śakti ‘denotative power’, which determines the essential meaning of a word; lakṣaṇā, direct and conventional inferences based on the essential meaning; vyañjanā, metaphorical inferences or inferences based on social/cultural context; and tātparya, the intention of the speaker. The distribution of the standard meanings/uses of words between śakti and lakṣaṇā is a particular area of controversy in the Indian tradition, and a common point of divergence between the linguistic theories of Vyākaraṇa and of other traditions like Nyāya and Mīmāṃsā.

The awareness of pragmatic issues had a significant impact on some other aspects of linguistic theorizing. For example, Bhartṛhari’s arguments against semantic compositionality in language, and thus against any real divisibility of linguistic units, is driven partly by concerns over the gulf between supposed literal meaning and actual use.