UPDATE 1-India Congress aims to shore up govt after ally quits

Sun Mar 6, 2011 5:33pm IST

* Efforts to avert latest political crisis

* Regional group ministers to quit Monday

* Budget passage will be first test

(Recasts throughout)

By Sanjeev Miglani

NEW DELHI, March 6 (Reuters) - India's Congress party moved to shore up its ruling coalition on Sunday after a key partner said its ministers will formally quit the cabinet on Monday, the latest setback for a government beset by corruption scandals.

Prime Minister Manmohan Singh's government is not in immediate threat of collapse because the Dravida Munnetra Kazagham (DMK) party has said it will continue to offer conditional support even after its six ministers leave because of a row over local elections.

The Congress party, in addition, can seek support from other regional groups to boost its numbers in parliament, as few want to face an election more than three years ahead of schedule.

Still, the DMK's decision to quit the cabinet will further hobble the government's ability to push through reforms, as it becomes dependent on new pressure groups for support.

"The Congress has not got in touch with us. DMK Ministers will submit their resignation letters tomorrow," T.R. Baalu, a senior leader of the party said, rejecting reports that the two sides were in talks to mend the alliance.

The Congress party made no immediate comment, and local TV stations said top leaders would hold talks with party chief Sonia Gandhi later on Sunday to plan the party's response to the latest crisis.

The coalition has been hit by a string of crises, including corruption scandals, runaway inflation especially food inflation which hit 18 percent in December and an opposition that has blocked its reform agenda.

The scandals have eroded confidence in Singh's ability to effectively lead Asia's third largest economy, and foreign direct investment has fallen even though India remains one of the world's fastest growing economies.

Singh last month said he was not a "lame duck" prime minister, vowing to press forward with the party's reform agenda.

A source in the prime minister's office said there was no threat facing the government following the move by the DMK which had 18 members in India's 545-member lower house of parliament.

Political analysts say Congress may approach the northern Samajwadi party, which has 22 MPs, to secure its majority in parliament.

The first test for the alliance will come during the current session of parliament, when the government seeks approval of the 2011-12 federal budget.

The government would fall if it lost the budget vote.

STRAINED

Ties between the Congress and the DMK have been strained since a massive telecoms licensing scandal involving a minister of the DMK surfaced, deeply embarrassing Singh.

Concessions to run mobile networks in one of the world's fastest growing markets were sold at rock-bottom prices by the telecommunications ministry headed by A. Raja, a DMK member, which an audit said had caused a loss of $39 billion.

Raja was sacked and is now in prison, but there is concern that the federal investigation into the scandal may touch other top leaders of the DMK which is led by strongman M. Karunanidhi and members of his family.

"The DMK's move to break the alliance is not about seatsharing. It is about the investigation into the 2G scandal," said political commentator Cho Ramaswamy referring to the sale of mobile licenses.

The main opposition, which forced Singh to accede to its demand for a parliamentary probe into the telecoms scam, has stepped up attack on the ruling coalition.

"The alliance is wounded. The Congress and the DMK have become a liability for themselves," said Arun Jaitly, a leader of the main opposition Bharatiya Janata Party.

(Editing by Daniel Magnowski)

((sanjeev.miglani.@thomsonreuters.com; +91 11 4178 1015; Reuters Messenging: alistair.scrutton@reuters.com@reuters.net)

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