The Indian stock markets are witnessing what can only be termed as a sharp correction. Another 10 per cent down and we would call it a slump. Any further, and we would be in bear market territory. But rather than focusing on fundamentals, our politicians are giving this episode a whole new perspective. And ofcourse, the most innovative amongst our learned politicians are the comrades.

One of the reasons being discussed as a major contributor to this crash is the 'draft' circular issued by the Central Board of Direct Taxes discussing tax implications for the foreign institutional investors.

This circular apparently has the potential to increase the tax liability of FIIs dramatically in some instances. It undoubtedly sounds like a genuine reason (the finance minister no less seems to think so) unless ofcourse one were to look at the bigger picture - are the Indian markets reacting to global market trends or are the global markets reacting to ours.

The answer is pretty obvious. The Indian stock markets had run ahead of themselves, like most other markets around the world. The 'correction' has been witnessed in many emerging as well as developed markets. But does a correction warrant a change in the way the whole system is run?

"Yes!" our comrades would shout back. Using this opportunity, they have quickly made certain recommendations:

Long term capital gains tax should be reintroduced

The Double Tax Avoidance Agreement with Mauritius should be reviewed

Capital Account Convertibility should not be brought in

On a popular TV channel, a comrade even recommended that the 'middle class' should invest only in banks, government sector and the public sector undertakings (why take risk?)

The Finance Minister has been quick to reiterate that there will be no going back on long term capital gains tax as well as the tax avoidance treaty with Mauritius.

Of course, this correction has been used as an opportunity to highlight "only a miniscule minority of Indians have benefited from the stock price bubble in India" and that "steps are also required to protect the small investors in the stock market who suffer the most from market meltdowns".

As an initiative, which focuses on investor education, at Personalfn we have been hugely disappointed with the effort taken by the government to further the cause of investor education (our government spends more time and money in attracting and educating foreign investors than its own domestic investors).

And it is even more disappointing when the same people who have the power to give a fillip to the cause of investor education [the Government of India is sitting on hundreds of crores of rupees (1 crore = 10 million) meant for investor education] turn around and talk about how the retail investor has been left out of the rally or how he/she has lost money.

Personalfn has a few thousand clients for its financial planning services (a lot of these clients are first time investors in instruments such as mutual funds). And over the last few days many of them have called in for our view on the stock markets.

Broadly speaking, our clients have not pressed the panic button, though undoubtedly some are getting a little nervous due to the precipitous fall; but the fact is that most of the queries we have been handling pertain to investing more money as the markets correct (in fact that has been our recommendation to our clients which have the risk appetite).

This we believe is the result of honest advice and investor education more than anything else. And to our mind investor education is a 365 days-a-year activity; not something to take up just when the markets fall.

For a Free download of the latest issue of Money Simplified - Retirement Planning & YOU, click here!

Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Discussion Group.