Published Paper Details:

In the post reform period several measures have been implemented for the purpose of reducing fiscal deficit, which was one of the biggest sources of economic instability in the economy. Processes of fiscal consolidation has affected to working of Indian monetary policy very closely, which has got an autonomous status in the post reform period. It has also paved the way for development of different segments of Indian financial market. Development of Indian financial market has provided many new channels of monetary transmission, such as interest rate channel, exchange rate channel and asset price channel. Emergence of new channels has helped in effective transmission of monetary policy. Objective of the present paper is to assess the impact of fiscal consolidation processes on effectiveness of monetary transmission. For above objective, first of all theoretical framework of all the channels of monetary transmission has been defined and there after using simple regression analysis technique their significance have been found for the periods of 1971 to 1991, 1991 to 2013 and overall period of 1971 to 2013. Results of the study show that overall effectiveness of monetary policy has improved in the post reform period. It is found true for almost all the channels of monetary transmission. However, only two channels viz. credit channel and interest rate channel found significant, remaining two channels; exchange rate and asset price channel were found insignificant. It has been argued in the paper that there is further scope for improvement in monetary transmission and development of specialised financial markets are very critical in this direction.