The operation of financial markets and the degree of vulnerability that an economy becomes exposed to with greater opening is itself influenced significantly by fiscal conditions. Hence the efficacy of monetary policy, efficiency of financial markets, and external vulnerability are closely linked to the practice of prudent fiscal policy.
Finally, for efficient monetary policy transmission, and depth, liquidity and efficiency of financial markets, financial intermediaries themselves have to be strengthened. It is in view of all these inter-linkages that I have chosen to provide a brief overview of developments in each of these areas as they have evolved over the past decade and a half in India. II.