UPDATE 3-India PM keeps key ministers; fresh focus on rural vote

Tue Jul 12, 2011 7:56pm IST

* Finance, interior, defence, foreign, trade ministers stay on

* Ramesh moved to rural development ministry from environment

* Changes seen as cosmetic, no quickening of reforms

* Singh says last reshuffle before 2014 elections - media (Adds PM comment, minister resignation in paragraphs 9, 10)

By C.J. Kuncheria and Paul de Bendern

NEW DELHI, July 12 (Reuters) - Indian Prime Minister Manmohan Singh retained key allies in a cabinet reshuffle on Tuesday, shunning big changes in a bid to hold onto power amid charges of graft and policy paralysis.

In his second cabinet revamp this year, the beleaguered prime minister shied away from his pledge of a major shakeup, choosing instead to focus on gaining rural support ahead of 2012 state elections.

He retained his influential but often troublesome finance and interior ministers, a sign that stalled economic and political reforms were unlikely to be fast-tracked soon.

Tweaks to the government were seen as an attempt to remove some underperforming ministers and prepare the ruling Congress party for a key election in Uttar Pradesh next year, India's largest state with some 200 million people, a vote seen as setting the stage for a national election in 2014.

"I don't think it is a big-ticket change. I mean there have been some changes at the margin. It could be that part of this exercise is with an eye on the U.P. elections," said Sonal Verma, a Mumbai-based economist at Nomura, who still expected some economic reforms in the near-term.

The Congress party-led government has repeatedly promised new policies, including opening the retail sector to foreign investment, simplifying the taxation structure and land acquisition laws.

Singh did recently cut fuel subsidies, a sign that the government can push difficult decisions it if so wishes.

Bond and stock markets in Mumbai did not react to the reshuffle as those ministers who handle one of the world's fastest growing emerging markets were kept in their posts.

Singh was quoted by local media as saying that this would be the last reshuffle before the national election in 2014.

But hours after the swearing-in ceremony, Gurudas Kamat, a newly appointed cabinet minister in charge of drinking water and sanitaion, resigned. Media reports said he was asked to quit after voicing disappointment over his new portfolio.

MAVERICK MOVED ON

In one surprise appointment, the maverick Jairam Ramesh was moved to the rural development ministry from environment, a change expected to be welcomed by business.

As environment minister Ramesh held up multi-billion-dollar investments into the steel, infrastructure, mining and power sectors by strictly enforcing green laws, displeasing big business and worrying investors.

Ramesh is believed to be close to Congress president Sonia Gandhi, the power behind the government, but has had differences with the prime minister.

The rural development ministry, which looks after an expensive job guarantee scheme popular with the poor, is central to the ruling party's strategy to keep its rural voter base.

Singh is likely to face a hostile monsoon session in parliament from Aug. 1 when opposition parties are expected to press the government on corruption and inflation, currently the highest in any major Asian economy.

Voter discontent in India has steadily grown after one corruption scandal after another have embroiled the government. The former telecoms minister is under arrest over accusations of taking bribes in a scandal that may have cost the state $39 billion in lost revenues.

Left-of-centre Congress has traditionally relied on the rural poor for votes and the tweaks in the cabinet suggest Gandhi wants to ensure the recent scandals, coupled with soaring inflation will not lead to a loss of support in coming years. (Additional reporting by Abhijit Neogy in New Delhi; Editing by Daniel Magnowski and Yoko Nishikawa)

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