When the Reserve Bank of India cuts its benchmark rate, the expectation is clear: cheaper loans will encourage businesses to invest, grow and create more jobs.

Between the rate cut and a Kashmiri business owner deciding whether to take a loan, there are hurdles that economic theory often overlooks. 

These hurdles can determine whether cheaper credit leads to new investment in the valley’s small businesses.

National figures show that lower interest rates do lead to cheaper loans, to some extent.

According to the Economic Survey 2025-26, the RBI cut its benchmark by a cumulative 100 basis points between April and November 2025. The weighted average lending cost on fresh rupee loans from scheduled commercial banks fell by 64 basis points to 8.71 per cent in November, while the average on outstanding loans fell by 56 basis points to 9.21 per cent. 

Banks passed on less than the full cut, which proves little by itself, since the two costs respond to different financial conditions and need not move in step. 

The difference does show how much can change between a central bank’s decision and a borrower’s experience.

Jammu and Kashmir’s Economic Survey 2025-26 gives a clearer picture of lending in the region.

Bank deposits stood at ₹2,03,524 crore and advances at ₹1,28,073 crore on September 30, 2025, a credit-deposit ratio of 62.93 per cent. 

In the first half of the financial year, micro, small and medium enterprises took 23 per cent of priority-sector credit flow, against 48 per cent for agriculture. 

Those numbers place small enterprises within the banking system, but they leave out how many viable businesses were refused, what individual firms paid, and how much of the money became investment. 

A ratio cannot say whether the region has too little credit or enough.

The record also holds good........

© Kashmir Observer