India to widen telco probe as Ratan Tata backs govt

File photo of Kapil Sibal at the World Economic Forum in Davos, January 31, 2009.

NEW DELHI (Reuters) - The government on Thursday widened a probe into the country's biggest corruption case to include decisions made during the main opposition party's rule, a move that may take steam out of a campaign against the it.

The probe into the 2008 grants of telecoms licences that the state auditor said lost India $39 billion in potential revenue will now examine licencing procedures when the main opposition was in power and which have been cited in court as a precedent.

The opposition Bharatiya Janata Party (BJP) has forced parliament shut, demanding the Congress-led government set up a parliamentary probe into the case, the largest of a raft of corruption cases that have emerged in recent months.

Telecoms Minister Kapil Sibal's decision to ask a retired judge to probe decisions from 2001 onwards, which would include those of the BJP during its rule until 2004, could put the party on the defensive and allay fears the political deadlock could spill over to the February session of parliament.

Andimuthu Raja, who resigned as telecoms minister in November after the report, and whose homes have been searched in the case, had defended himself saying he followed past norms and the Supreme Court had asked police working on the case to look back to 2001.

Singh and his government have been struggling to contain the damage from India's "season for scams" which includes a bribe-for-loans scandal which implicated state-run banks and sizeable private companies and, graft at the Commonwealth Games.

The cases have taken the sheen off India's image as an investment destination, and the parliamentary deadlock has delayed the passage of key reforms including a much awaited law for the easing of land acquisition for industry.

Investors have shrugged off widespread corruption as part of the risk of doing business in emerging markets, but remain wary of any regulatory changes and of decisions that could affect existing foreign investments, such as those made in telecoms firms being probed.

On Thursday, top Indian mogul Ratan Tata appeared to give some support to the government, citing telecoms policy "flip-flops" during the BJP's rule and terming the auditor's estimate of losses as "hypothetical."

"Whatever may be said, it must be recognised that the recent policy broke the powerful cartel which had been holding back competition and delaying implementation of policies not to their liking," Tata said in a letter released by his publicist.

Ratan Tata, ranked No. 61 in the Forbes list of the world's most powerful people, and his $70 billion conglomerate are seen as refreshing exceptions in a country where corruption is widespread and often accepted.

Sibal said India will issue notices later this week to several companies, asking them why their telecoms licences should not be cancelled, after the audit report suggested they were not eligible for them.

The companies named in the state auditor's report on the scam include those which were later bought into by Norway's Telenor and UAE's Etisalat.

The ministry is also sending separate notices to 119 zonal telecoms licensees that have not complied with services rollout obligations.

(Editing by Alistair Scrutton)