BANKING/FINANCE: Asset prices: More deficit sensitive than traditional.

from BUSINESS LINE, July 15, 2009inflation? Has the Finance Minister, Mr Pranab Mukherjee, thrown fiscal prudence to the winds? Many influential economists think so. Predictably, international credit rating agencies too are on the warpath, threatening to downgrade India.

The global and domestic economic situation has increased the red ink in government finances. But much of the fault also lies within - the Pay Commission awards, election, Defence expenditure, subsidies, etc. The result, as many commentators have pointed out, is a sharply rising deficit between current income and current expenditure. It is a classic debt trap - the Government must borrow to finance a revenue …