[OPE-L:7439] The putting-out system/ dadni loans

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Mon Jul 22 2002 - 12:34:05 EDT

 From Hamza Alavi at 

The rapid export-led growth of Indian textile production was brought 
about by new weavers entering the trade rather than by changes in 
technology. New
entrants needed funds for working capital and to buy the necessary 
equipment. A system of cash advances, called dadni loans, developed 
whereby prospective
buyers of cloth would advance the money, in return for which, in a 
sellers market, the lender/buyer would pre-empt delivery of the 
finished goods from the
weaver. Some scholars have mistakenly taken that system of dadni 
loans to be analogous to the English 'putting out system' which was a 
precursor of the
industrial revolution in England. (e.g. Habib, 1969:67-68). Habib and 
other Indian scholars have argued that India was itself on the 
threshold of an industrial capitalist revolution that was thwarted by 
the impact of colonial rule. (cf. Bipan Chandra et. al., 1969 and 
Habib, 1969) That seems to be a mistaken view.

There is an important difference between the Indian system of dadni 
loans and the English putting out system. In the case of dadni loans, 
the weaver was
given the loan by the prospective buyer of his product which thereby 
bound him to deliver the finished goods to that buyer. But, given the 
money, the weaver
was left to his own devices to procure his raw materials and work on 
them. The buyer-moneylender, the dadni-merchant, did not handle the 
raw materials or
equipment and was not involved in the process of production in any 
way. By contrast, in the 'putting out system' the entrepreneur took 
the raw materials
round to the weavers, from door to door, and collected the finished 
cloth. He soon realised that instead of going from door to door, he 
could simplify his task by bringing all his weavers under one roof. 
That gave rise to the factory system which, in turn, led to 
mechanisation and a transition to the Industrial
Revolution. That dynamic was absent given the financial organisation 
of production in India.

After its conquests in India, after 1757, the East India Company, 
operating through its agents called goomasthas, transformed the 
system of dadni loans in a
manner that was designed to subordinate the weaver totally to the 
Company's agents. Their object was to pre-empt the weaver's services 
at low prices, as
against other competitors, including other European operators who 
were thus elbowed out. The Company developed a practice of forcing 
advances on
unwilling weavers. A historian writes that before domination by the 
Company 'They (the weavers) used to manufacture their goods freely 
and without
oppression, restrictions, limitations and prohibitions. There was no 
attempt to restrict their goods to the one market of the East India 
Company.' (Sinha, 1961:
159). Then it all changed.

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