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In my current organization they are archiving old data to external system ( sql database ).But now they have a requirement to generate consolidated  report on both salesforce and sql data.

how to achieve this??
Akshatha - It depends on what you mean by 'consolidated reports' and what approach you take. If you need to join data between archived data in a SQL database table and current data in a SFDC object, a best approach might be to combine all the data in one reposiory for reporting. You can look at a third party tool called DBAmp from http://www.forceamp.com/ that lets you easily pull your SFDC data into SQL Server (only) database tables. From there you will have to construct your joins and reports. Perhaps it will get you started.