Srinagar, Apr 6: The policy framework of the Government of India has consistently placed MSMEs at the core of economic growth, recognising that timely and adequate credit is essential for their survival and expansion.
The Prime Minister’s Task Force on MSMEs (2009-10) clearly identified access to finance as the sector’s most critical constraint and called for a facilitative credit ecosystem supported by continuous monitoring through institutional mechanisms like SLBCs and Industries and Commerce Departments.
This approach was reinforced by the Reserve Bank of India through priority sector lending norms, restructuring frameworks, and directions prioritising the revival of viable MSMEs over their classification as NPAs.
However, the reality that has unfolded in Jammu and Kashmir stands in stark contrast to this policy intent.
The failure begins at the very inception of an enterprise.
Project reports, prepared with viability assessments and financial projections, are routinely subjected to downward revisions by banks, often under the very gaze of the sponsoring department.
This curtailment of assessed credit requirements becomes the starting point of stress, forcing enterprises to operate with inadequate capital from day one.
What should have been the first line of support – the Industries and Commerce Department – has remained conspicuously passive, neither defending the viability of projects it sponsors nor ensuring that financial institutions adhere to realistic funding norms.
As enterprises move into the operational phase, the constraints deepen.
Requests for enhancement of working capital or term limits are met with delays, procedural hurdles, and increasingly rigid conditionality.
MSMEs are subjected to standardised national benchmarks – CIBIL score thresholds, mandatory external Credit Ratings, and high collateral requirements – without any regard to the region’s specific realities.
Rating agencies factor in the region’s geopolitical conditions as an added risk and accordingly downgrade enterprise ratings and scores, placing them at a disadvantage compared to their counterparts elsewhere in the country.
This effectively penalises local MSMEs for circumstances entirely beyond their control, further constricting their access to credit instead of enabling it.
This distortion becomes even more glaring when viewed against the region’s actual credit behaviour.
Default rates in Jammu and Kashmir have historically remained lower than national averages, including within regional banking institutions.
Yet, the perception of risk continues to dominate lending decisions, unchecked and unchallenged.
The responsibility to correct this disconnect squarely lay with the Industries and Commerce Department, which was expected to take up these issues at appropriate forums, particularly in UTLBC meetings.
Instead, these platforms have been reduced to routine exercises, with little evidence of serious intervention, structured reporting, or advocacy on behalf of MSMEs.
The absence of departmental engagement has effectively allowed financial institutions to operate without any developmental accountability.
The consequences of this institutional silence become most severe when enterprises enter financial stress.
Despite clear RBI guidelines on restructuring and revival of MSMEs, accounts are frequently pushed towards NPA classification without exhausting available rehabilitation measures.
There has been no visible effort by the sponsoring department to ensure that banks adhere to these frameworks or to question premature or unjustified classification of accounts.
Similarly, excessive collateral demands – often beyond prescribed norms – have gone unaddressed, further tightening the flow of credit.
Priority sector lending obligations towards MSMEs, though formally reported, have not been meaningfully monitored in terms of their adequacy, accessibility, or impact.
Equally concerning is the gradual erosion of special policy consideration that the region once received.
Earlier, recognising the unique geopolitical and economic challenges of Jammu and Kashmir, the RBI in 2005 had introduced a package of targeted concessions, including a degree of flexibility and relief to local enterprises.
This package was renewed year on year for more than a decade. Over time, however, this differentiated approach has disappeared, and MSMEs in the region are now subjected to uniform national, rather harsher standards without any compensatory safeguards.
What is striking is not just the withdrawal of such support, but the absence of any sustained effort by the Industries and Commerce Department to seek its continuation, revival and improvement.
Across the entire lifecycle of an MSME – from establishment to operation, from expansion to distress – the pattern remains consistent: increasing rigidity on the part of financial institutions, and a corresponding withdrawal of institutional support from the very department mandated to protect and promote enterprise.
The result is a credit environment that is not merely constrained, but structurally misaligned with the needs of the sector. In this context, the narrative of ‘Ease of Doing Business’ stands fundamentally contradicted.
Ease cannot be claimed where access to credit is uncertain, where financial processes are exclusionary, and where enterprises are left to negotiate systemic rigidities without institutional backing.
The issue is not the absence of policy, but the absence of its enforcement and contextual adaptation.
What emerges, therefore, is not a failure of intent at the national level, but a failure of transmission and accountability at the regional level.
The sponsoring department, instead of acting as a bridge between policy and practice, has allowed that bridge to collapse, leaving MSMEs to confront a financial system that neither accommodates their realities nor reflects the spirit of the policies designed to support them.
In such a framework, the question is no longer about improving credit flow. It is about confronting a deeper institutional failure where the responsibility to protect, facilitate, and advocate has been quietly abandoned, and where MSMEs continue to bear the consequences of a system that was meant to sustain them.
