PM on defensive as more bad news hits economy

NEW DELHI Fri Jun 15, 2012 9:02am IST

Prime Minister Manmohan Singh (C), Trinamool Congress Chief Mamata Banerjee (R) and Finance Minister Pranab Mukherjee (L) attend an election campaign rally ahead of the third phase of elections on the outskirts of Kolkata April 23, 2011. REUTERS/Rupak De Chowdhuri/Files

Prime Minister Manmohan Singh (C), Trinamool Congress Chief Mamata Banerjee (R) and Finance Minister Pranab Mukherjee (L) attend an election campaign rally ahead of the third phase of elections on the outskirts of Kolkata April 23, 2011.

Credit: Reuters/Rupak De Chowdhuri/Files

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NEW DELHI (Reuters) - The ruling Congress party was in turmoil on Thursday after two key allies signalled they had lost confidence in Prime Minister Manmohan Singh, whose fragile coalition government has struggled to cope with mounting economic problems.

The party was forced to spring to the prime minister's defence, insisting he would remain in his post until general elections due by 2014, after the allies suggested he should be considered for the largely ceremonial position of president.

Congress was blindsided by the comments from West Bengal Chief Minister Mamata Banerjee, who has repeatedly thwarted proposed economic reforms despite being a member of the government, and Samajwadi Party chief Mulayam Singh Yadav.

(Also read: Blog: With stalled reforms, Indian government needs to win new friends, click here)

Congress's ability to get its nominee elected president is widely seen as an important test of its power after it suffered stinging defeats in provincial elections this year. India will elect a new president on July 19 and Singh has already made clear he has no interest in taking the post.

Singh, hailed as the architect of landmark economic reforms he introduced in 1991 when he was finance minister, has been widely criticised by business leaders and investors for weak leadership at a time when India is beset by slowing growth, dwindling foreign investment, and high inflation.

There was fresh evidence of the economic troubles on Thursday. Government data showed that exports from Asia's third-largest economy fell 4.16 percent in May over the previous year, while inflation rose in the same month to 7.55 percent.

Congress, which has ruled India for most of the 65 years it has been independent, has yet to officially name its presidential candidate, but Finance Minister Pranab Mukherjee is viewed as party leader Sonia Gandhi's top choice.

SURPRISE SNUB

Until Wednesday, the party thought it had the votes it needed to get him elected and much of the focus had been on who would replace him and whether the change in leadership would be a boon to the economy.

But the snub by Congress's allies - Mukherjee was not on their list of potential candidates - threw what had been a relatively smooth presidential race into disarray and fuelled speculation about a new government lineup that would not include Singh, who has been prime minister since 2004.

"We cannot afford to remove Manmohan Singh from the prime minister's post. It is our commitment to the nation. He will stay in the chair until 2014," said Janardan Dwivedi, the Congress party's chief spokesman.

Television news channels showed Congress leaders shuttling back and forth from Sonia Gandhi's New Delhi home as she tried to plot a way forward. Three Congress officials told Reuters that Mukherjee remained her preferred candidate but that the situation was fluid.

News reports said the party was scrambling to muster the votes it needed from a coalition of smaller parties. It was not clear whether it would get the magic number it needs to get its candidate through the electoral college.

"The Congress would lose face badly if it does not now run with Mukherjee," the Economic Times warned.

With the next general election widely expected to produce a fragmented parliament with no clear winner, Congress wants to make sure it controls the presidency. The new president will play a key role in deciding which party takes the lead in forming a government.

The political drama is a major distraction at a time when the flagging economy and global economic uncertainty require the government's full attention, a government official said.

"It is not correct to say that the work has stopped. Work is going on. But it does act as a distraction," the official said on condition of anonymity. When the situation is bad, you would want complete focus on the economy."

Indian media offered differing interpretations for Wednesday's embarrassing snub by the regional allies, but analysts agreed it was typical of the machinations that complicate Indian politics and confound good governance.

"Everybody has a chess game in mind," said analyst Surjit Bhalla, chairman of Oxus Investments, expressing hope that the latest developments could provide the impetus to shake up the political landscape and break the policy inertia.

(Additional reporting by Satarupa Bhattacharjya, Rajesh Kumar Singh, C.K. Nayak; Editing by Robert Birsel)

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