Controversy over CBDT circular resolved: FM

In all, it made four statements "" the first came from the Central Board for Direct Taxes (CBDT) in the morning, then a brief advice to investors outside Parliament by Finance Minister P Chidambaram, followed by a briefing by two senior finance ministry bureaucrats and finally Chidambaram telling the Rajya Sabha that he had chided some newspapers for misinformed reporting.

A lot more happened, some of it behind the scenes in meetings and phone calls exchanged between the finance ministry, the Securities and Exchange Board of India, the Reserve Bank of India and stock market authorities.

However, the thrust was clear: Get the banks and financial institutions to help the brokers meet margin calls, buy aggressively and do nothing to disturb the market peace.

The Reserve Bank of India was asked to advise banks to provide enough liquidity, with the directive coming after trading was suspended to avert any payments crisis.

Earlier in the day, the CBDT criticised a statement made by tax experts in a particular newspaper, which said the draft circular was "ambiguous". Chidambaram, in a reply to questions by Parliamentarians in the Rajya Sabha, said the controversy over the draft circular had been put to rest.

"Instead of leaving it to the arbitrary discretion of officers, guidelines have been provided to ensure uniformity and clarity," he said.

Referring to the original CBDT circular of 1989, which culled the principles laid down by different courts about investors, he said all that had been done 17 years later was to put out a draft circular and invite public comments.

Economic Affairs Secretary Ashok Jha, in the presence of Chief Economic Advisor Ashok Lahiri, doubted the circular's effect on volatility in the capital market.

"The speculated reports have been clarified. As per our reports, FIIs and mutual funds have been net buyers. Some brokers trading on the proprietary account may have come under margin pressure and, therefore, may have sold," Jha said.

Jha reteriated the meltdown was due to a variety of other factors, including the decline in global markets.