The Indian prime minister's office moved to quell an outcry over a reported $211 billion loss in revenues from the sale of coalfields on Thursday, after months of pressure over a slew of scandals that have weakened the government.
The Times of India earlier published part of a leaked draft report by the auditor's office that calculated massive revenue losses, causing a furore in parliament and driving stocks lower.
However, Prime Minister Manmohan Singh's office released a letter from the auditor's office that described the newspaper report as exceedingly misleading because the leaked document was not a final report and the auditor's thinking on the matter had changed.
The leak of the initial draft causes great embarrassment as the Audit Report is still under preparation. Such leakage causes very deep anguish, the auditor said in the letter.
Singh's government has lurched from crisis to crisis since massive graft in the sale of telecoms spectrum surfaced two years ago. Voters punished the ruling Congress party in regional elections last month and its coalition partners are increasingly rebellious.
The leaked draft from the Comptroller and Auditor General's (CAG) office criticised the allocation of 155 coalfields to about 100 private and some state-run firms between 2004 and 2009 instead of auctioning them off to the highest bidder.
The firms included a subsidiary of the world's largest steel maker, ArcelorMittal. The firm's shares were trading down 3.2 percent in Amsterdam.
The draft said the policy undervalued the coal by at least 10.7 trillion rupees, or $211 billion at today's exchange rate.
In its letter to the prime minister, the auditor backed away from that loss calculation, describing the low-priced sales as an unintended benefit to companies that did not mean an equivalent loss to the exchequer.
A sub-index of Indian steel stocks dropped 3.3 percent, while Mumbai's benchmark index closed down 2.3 percent.
(Reporting by Nigam Prusty, Manoj Kumar and Ratnajyoti Dutta and Henry Foy in MUMBAI. Writing by Frank Jack Daniel; Editing by John Chalmers)