ANALYSIS-India's Hindu nationalists face survival test

NEW DELHI, Sept 1 (Reuters) - Riven by squabbling, India's main opposition party will be forced to name a new leader in a crisis that could reshape opposition politics, strengthening the left and hindering government efforts at financial reforms.

An election defeat in May sent the Hindu-nationalist Bharatiya Janata Party (BJP) into disarray, touching off a leadership struggle and a debate over its ideological identity.

The trigger was last month's firing of veteran BJP party heavyweight Jaswant Singh after he wrote a book sympathetic to Pakistan's founder Mohammed Ali Jinnah -- a controversy that has effectively split the party. Now, moves are underway to replace 81-year-old leader L.K Advani with someone from a younger generation, but the BJP is struggling to find a candidate who balances its pro-Hindu ideology with its history of pro-market reforms.

How the party meets this task could reshape opposition to the ruling Congress party-led coalition and even determine if new political forces, including populist regional parties and the communists, claim a space the BJP is at risk of ceding.

"The entire opposition has been hobbled. So there remains a possible risk of returning to the days of left-of-centre politics," said political commentator Swapan Dasgupta, referring to the largely leftist consensus that dominated India for decades after independence in 1947.

Already in the first three months of the Congress government it has been some of its own populist allies -- not the BJP - that have blocked some reforms such as easier land acquisition for industry.

The ruling coalition is besieged with crises, including a drought and rising food prices, that have undercut impetus for reforms. Communist parties are criticising the government on its handling of the drought in rural areas.

With state elections near, the growing space given to populist regional parties in opposition may slow moves to open insurance, banking and retail to overseas players.

WHAT FUTURE?

The BJP in the meantime has been debating its future -- whether its Hindu-revivalist agenda, once its passport to power, was now irrelevant for younger voters.

The party rose to prominence in the early 1990s on the back of a Hindu-revivalist movement and ruled from 1998 to 2004 promoting economic reforms. Its May election loss was partly blamed on a lack of political leadership.

"The BJP is imploding and we have to see how the power struggle plays itself out," said political economist Paranjoy Guha Thakurta.

Sushma Swaraj, a feisty 57-year-old former student leader and ex-cabinet minister, could be the BJP's new parliamentary leader, according to BJP sources. She is seen as a compromise, a reformist who also embodies traditional Hindu India.

That could signal the entry of a newer generation.

Narendra Modi, the firebrand chief minister of western Gujarat state whose pro-market image saw leading Indian industrialists float his name as a potential future prime minister, appears to be sidelined.

That signals the party is worried about losing the middle ground by boosting Modi, accused of turning a blind eye to religious riots in Gujarat in 2002 in which hundreds of people, mainly Muslims, were killed by mobs.

"For the BJP it is not only about leadership but also about what kind of politics the party would want to pursue -- one that hinges on the Hindu identity or a liberal, responsible opposition," said political analyst Amulya Ganguli.

"It remains to be seen whether it survives or disintegrates, in which case the gauntlet of the principal opposition passes on to new political forces." (Editing by Alistair Scrutton and Jerry Norton)