impact of monetary policy on indian economy in the post-reform period

A process <strong>of</strong> openness was initiated by Governor Rangarajan and has been
widened, deepened and intensified by his successors Bimal Jalan, Y.V. Reddy and D.
Subbarao. Now, the goals <strong>of</strong> <strong>monetary</strong> <strong>policy</strong>, in India, are not set out in specific terms
and there is greater freedom in the use <strong>of</strong> instruments. Greater transparency in the
setting <strong>of</strong> objectives <strong>of</strong> <strong>monetary</strong> <strong>policy</strong> and instrument freedom are expected to bring
about greater rigor in the formulation <strong>of</strong> strategies and the choice <strong>of</strong> instruments.
In India, Money supply has been regarded as an appropriate intermediate target
between the variables and objectives. Hence, it is also important to measure the
structure <strong>of</strong> different economic variables that varies with respect to <strong>monetary</strong> <strong>policy</strong>
decisions. To study the changing stages (transmission periods) <strong>of</strong> <strong>monetary</strong> <strong>policy</strong> is
also considered, relevant.
Monetary <strong>policy</strong> is known to have both short and long term effects. While it
generally affects the real sector with long and variable lags, <strong>monetary</strong> <strong>policy</strong> actions on
financial markets, on the other hand, usually have important short-run implications.
It is necessary to recognize the existence <strong>of</strong> a large informal sector, the limited
reach <strong>of</strong> financial markets relative to the growing sectors, especially services. This
tends to constrain the effectiveness <strong>of</strong> <strong>monetary</strong> <strong>policy</strong> in India.
It is well recognized that <strong>monetary</strong> <strong>policy</strong> is conducted within a particular
framework. The relationship among different segments <strong>of</strong> the market and sectors <strong>of</strong> the
economy is also involved in this framework. As part <strong>of</strong> the ongoing process <strong>of</strong> reforms,
it is necessary to improve standards, codes and practices in matters relating to financial
system and bring them on par with international ones.
These are some items <strong>of</strong> significance for further research in the realm <strong>of</strong>
<strong>monetary</strong> <strong>policy</strong> in India.
1.2. OBJECTIVES OF THE STUDY
1. To study the changing role and importance <strong>of</strong> selected <strong>monetary</strong> instruments in
India
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