From Policy Transmission To Business Adaptation: A Dual-Perspective PLS-SEM Analysis of Post-COVID Monetary Policy Effectiveness in India

Abstract

Purpose – Monetary policy effectiveness in emerging economies depends less on the design of instruments than on how efficiently policy signals travel through financial intermediaries to economic agents. This study examines post-COVID monetary policy effectiveness in India through a dual-perspective framework capturing the supply side (banks) and the demand side (Micro, Small and Medium Enterprises, MSMEs) of transmission simultaneously.

Design/methodology/approach – Adopting a positivist, deductive, cross-sectional design, primary data were collected from 175 banking professionals and 159 MSME owner-managers in India using a structured five-point Likert instrument. Two structural models were estimated by Partial Least Squares Structural Equation Modelling (PLS-SEM) with 5,000 bootstrap resamples: the banker model links Policy Alignment (PA) to Banking Operational Resilience (BOR) through Transmission Efficiency (TE), and the MSME model links Policy Support (PS) to Adaptive Business Behaviour (ABB) through Credit Accessibility (CA).

Findings – Policy Alignment drives Transmission Efficiency (β = 0.574), which strengthens Banking Operational Resilience (β = 0.475), with TE partially mediating PA–BOR (VAF ≈ 61%). Policy Support improves Credit Accessibility (β = 0.734), which enhances Adaptive Business Behaviour (β = 0.562), with CA partially mediating PS–ABB (VAF ≈ 63%). All eight hypotheses are supported, and the demand-side model explains substantially more variance.

Originality/value – The study integrates the bank-lending and credit channels within a single stakeholder-centric, primary-data framework for the post-pandemic period, reframing transmission effectiveness as an organisational and behavioural phenomenon and identifying two intermediary mechanisms through which policy intentions become operational and adaptive outcomes.