How concerned or worried are you about the state of the Indian capital market in the short-term since we have to sit in the global context or sell off as far as the emerging markets are concerned?
The markets all over Russia, China, Brazil, Indonesia have declined. India as an emerging market, is not an exception. The difference in India is that in the last few days, some people who have been over-leveraged have come under margin pressures.

I believe yesterday the Reserve Bank, the banks, SEBI and the exchanges have addressed that issue.

There is nothing to worry for genuine investors because they are invested for the long-term and the long-term India story continues to be that of solid growth. No one has doubted India's growth story. In the short-term, we are addressing the issue of over-leveraged buyers.

How are you addressing it as far as the future and option side of the market is concerned. That is where we saw the pain coming in, have you had a conversation with the regulator and what kind of systemic changes are possible or likely on that front?
I can't speak about systemic changes and I am told that SEBI has called a meeting of the exchanges today and they will address the issue. If they need my approval, they will make recommendations but in the immediate short-term what the over-leveraged buyer has to be given is margin money, liquidity and that is being provided.

At the same time, those who are sitting on large amounts of cash are still taking positions on the F&O segment. For example yesterday, while the FIIs were net sellers in the cash market - they have bought as much as Rs2,000 crore in the F&O market for June. So therefore those who have the money are taking positions while those who do not have the margin money will be provided liquidity.

We have seen clarifications on how the CBDT circular did not talk about FIIs; and how FIIs are governed by the double taxation and hence this is not a means of getting them under the tax net but have those apprehensions been allayed and what is the feedback you are getting from the FIIs?
No FII has complained to me about the circular. It is the experts who have been commenting on the circular. FIIs know the legal positions and they have gone to the advance ruling authority and got judgments in their favour. FIIs, whether they are traders or investors, if they do not have a permanent establishment cannot be taxed in India. Most FIIs are covered by the double taxation agreement.

So you have no complaints from FIIs on the CBDT circular?
Many FIIs have spoken to me and none of them have complained to me about the circular.

Have they expressed any apprehensions about the state of the markets, about the ferocity of the fall?
On the contrary I have heard, I have been told and I have read statements by FIIs. I even saw an ad by an FII in the front page of Indian Express yesterday in the money section, which says: "Stay invested, FIIs are here for the long-term."

What about the domestic mutual funds; we understand that the government does not want to influence the levels at which the market is trading. Have you been in touch with LIC, on what kind of strategy, vision and what kind of value they are seeing in this market?
I think the domestic mutual funds know what to do. Statements from MFs like UTI Mutual Fund and ICICI Prudential, which I have read this morning and yesterday say that this is a buying opportunity. Please see the irony of it, mutual funds say there is an opportunity to buy, high net worth individual say this is an opportunity to buy. Why should the small investors decide to sell now? The small investors must heed the advice of mutual funds and remain invested.

It is clearly an opportunity to buy. The market did rise too rapidly and when it did rise, I have been cautioning investors to take informed decisions. If you cannot do your homework, please trust your money to mutual funds. And now when a decline takes place, an orderly decline would not cause concern. But volatility causes concerns; what we are trying to do is stem the volatility and bring some order into the market.

How do you intend to bring some order into the market?
I think if investors stay invested and those who are over leveraged find the money to meet margin call, calm will return to the market.

On Friday, when you came out and made a statement, you called the market fall a manufactured crisis - what exactly did you mean by that?
I meant that there was some misinformed reporting about this CBDT's Draft Circular, the legal position remains the same as it was in 1989 and all that CBDT did was to update that circular. If anyone had any doubt about the thrust of the circular, whether it applied to FIIs or not should have, in my view, checked with the ministry of finance.

They could have asked us if it applied to FIIs and we would have told them that FIIs are governed by a separate provision of the Income Tax Act and governed by DTAA and the legal positions hasn't changed at all. Besides, it was a draft circular inviting public comment. That misinformation in a sense caused some alarm but I thought it was allayed when I came out and said that FIIs are exempted because they do not have a permanent establishment.

Although the FII apprehension may have been allayed, it certainly hasn't allayed the concerns of your allies, the Left parties as well as some members of the opposition. They are calling for an enquiry into the market crash on the basis of the data that you have got from the market regulator, from the economic agencies, is there any reason to believe that it could have been on account of other reasons that there is a need for any need for enquiry?
It is too early to comment one way or the other and I decline to comment for the time being. At the moment, our effort is restore calm and order to the market. Retail investors must stay invested, mutual funds are buying, FIIs have taken Rs 2000 crore position in the F&O segment, HNIs are saying in the newspapers that this is a great opportunity to buy. Let's restore calm in the market.

We understand that SEBI chief, Mr Damodaran was in the capital yesterday, did you meet him?
No, I was preoccupied with the Parliament and I think he went back early afternoon. He was here for an official meeting.

You said that the market regulators are going to be holding meetings today to take stock of the situation on how they can deal with the systemic pressure. Are they going to be meeting with the regulators as well as the finance ministry?
No, I was told that he is meeting the stock exchanges, the BSE and NSE.

The Left has commented on the vulnerability of the markets; they want reinstating of the long-term capital gains tax, which you have come out and said that the government is not intending to. But how do you plan to address these concerns; if the markets continue to fall, the Left will only continue to raise the bar on the apprehensions that they have?
We deal with arguments when they are raised but as I have said government has no intention to re-introduce long-term capital gains. The government does not intend to unilaterally review the Indo-Mauritius treaty. We are hemmed in by legal provisions that we have entered into voluntarily over a period of time. So I do not think any change in the tax regime is warranted.

FIIs are here for the long-term and I am happy that mutual funds have become equally significant players. In fact today, the influence of mutual funds is nearly equal to the influence of FIIs. I'm quite happy with the role played by FIIs and mutual funds in the last few days. If someone is selling, he is selling for a reason but someone else is buying at the same time. So, I don't think we should attribute motives to a sale or a purchase order. The point is that in the long-term, the India growth story is intact, FIIs know it, so do mutual funds and genuine retail investors must believe in that story.

There are also concerns about an asset bubble being created and now with the markets fallen the way they have, we continue to see negative sentiment on the street, do you expect to see it having a spin over effect on other asset classes as well, especially property prices?
Please remember that on May 17, 2004, the market hit 4427 and even after the correction over the last week, yesterday the market closed at nearly 10,500 and it is still 2.5 times what it is was on the eve of the UPA government assuming office. The market has risen in pace with economic growth and sometimes it has risen rather steeply.

But I have cautioned investors to take informed decisions. A correction is underway and a correction by itself poses no problem except that it should be orderly and I can't say what effect it will now have on the realty market. I haven't examined that but realty prices are not driven only by stock market but by number of other factors.