The turnover tax provisions are so harsh that if the fine print of the budget were available during trading hours, the BSE may have toppled beyond 112-points. For starters, the announcement of a 15 basis point turnover tax caused the Sensex to dip over a 100 points during the FM’s speech, but it recovered smartly on the realisation that tax would be payable only on purchases; which is an effective tax on two-way transactions of 7.5 basis points. Add to this a 10 per cent short-term capital gains tax (down from 30 per cent) and lack of clarity on the tax on speculative transactions and it was a recipe for a further fall in prices. When details of the Finance Bill became available, the debt market simply shut down and trading in the equity derivatives market also seem set to dry up when the markets reopen Friday.

Chapter 7 on securities transactions makes it clear that it intends to include all securities transactions including equity, debt, mutual fund units and derivatives trading for the purposes of levying turnover tax. The calculation of turnover tax on futures and options trading is explained in some detail and will have to be clarified if the market is to get going again.

NDTV broadcast a finance ministry clarification that turnover tax on equity will only be applicable to delivery based trades. This would cover only around 20 per cent of the total daily turnover. Can this be true? Nobody is quite sure until they see a written clarification. In any case, NDTV’s announcement was retracted by another channel in the evening. Turnover tax at the same rate on debt trades is also bizarre, when it’s well known that the market works on wafer-thin spreads. Again, there was a government clarification that the turnover tax will not apply to trades on the Negotiated Dealing System (NDS). But nearly 80 per cent of the trading happens on the wholesale debt market and it will all shift to NDS if this clarification were true. Surely, this government cannot intentionally kill the business of bourses through directed taxation measures. This too will have to be clarified.

There is similar confusion in case of units of mutual funds (MF). Fund managers say that all MF units traded would attract turnover tax but not the others. This would be unfair, especially to exchange traded funds. Couldn’t the government have avoided the turnover tax confusion with better understanding instead of listening to one segment of the market? Fortunately, the FM had said in his post-budget interviews that he is open to suggestions regarding the turnover tax. We will know on Friday whether this assurance is acceptable to investors or whether the market sinks.

The FM said that there are also indications that investors were returning to the primary market. He was referring to the February-March period when six PSUs raised over Rs 15,000 crore from the market. If the secondary market does not improve over the coming weeks, the fate of the forthcoming IPOs, including NTPC and TCS, could be jeopardised and the FM’s plan to raise Rs 4,000 crore through disinvestment may not materialise. The capital market had such high expectations from Mr Chidambaram that the disappointment is all the more acute and investors are disinterested in everything else in the budget speech. As a fund manager said: “It’s like the dog that didn’t bark”.