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NEW DELHI (Reuters) - The government appeared close to agreeing to a parliamentary probe into India's biggest corruption scandal in decades on Tuesday after a possible climbdown by Prime Minister Manmohan Singh to enable the assembly to resume its work and pass a budget.
At the centre of the graft charges is a potential $39 billion fraud in the awarding of telecoms licences in 2008. The opposition forced the December parliament session to shut, demanding a parliamentary probe into the scam.
The potential political breakthrough came as the Comptroller and Auditor General (CAG) began probing a possibly larger scam involving the allocation of satellite-based communication spectrum that reports said may have cost state coffers 2 trillion rupees ($44 billion). The prime minister's office denied the allegation.
The Congress party-led coalition government has seen its second term tarnished by a string of corruption scams that have led to the sacking of a telecoms minister and eroded public confidence in the prime minister and his party.
On Tuesday, the government held its third round of talks with opposition parties in a bid to break the deadlock. Several members of the ruling coalition who attended the meeting said the government would likely agree to a joint investigation with opposition members and broad powers.
"The government cannot make an announcement now as parliamentary convention requires such a decision to be announced in the house," a lawmaker of one of the coalition allies who attended the cross-party meeting told Reuters.
The lawmaker said Finance Minister Pranab Mukherjee, the government's chief trouble shooter, told the meeting that "no price is dearer than running parliament".
A senior Congress source said: "The mood today is that the government needs to do everything to distance it from corruption. We expect the government will eventually agree."
Congress has for months opposed a probe, fearing a drawn-out investigation that could overshadow key state elections this year and worries that Singh would be called to testify. But it is under huge pressure to mollify the opposition before the crucial budget session begins on Feb. 19.
Once parliament is back in session, there is no risk to the passage of the 2011/12 budget as the government has the required numbers. But any lack of debate will add to a sense of a breakdown in governance in Asia's third-largest economy.
Another round of meetings to break the deadlock is likely before parliament opens, an opportunity for the government to informally tell the opposition that it will order a joint probe.
Opposition parties have called on Singh to resign, saying he avoided pursuing a case against sacked Telecoms Minister Andimuthu Raja, who belongs to a party that is key to maintaining the coalition's majority.
Singh again found himself under scrutiny on Tuesday as a potentially larger scandal, also involving the improper allocation of lucrative telecom spectrum in 2005, began to gain traction.
The prime minister's office was forced to issue a statement denying local media reports that said a deal between India's space agency, a portfolio Singh oversees, and a private communications firm had cost the government billions of dollars.
The Indian Space Research Organisation (ISRO) is being probed by the CAG for the leasing of transponders on ISRO satellites to private firm Devas Multimedia, which granted it access to telecom spectrum without a bidding process, a CAG source who declined to be identified told Reuters.
The S-band spectrum space can provide broadband internet services. And in India's rapidly-expanding mobile phone market sales of the spectrum have raised billions of dollars in revenue for the government.
Officials at ISRO told Reuters that the CAG probe was taking place, but declined to comment further.
Opposition politicans have demanded that Singh explain his role in the deal, as Prithviraj Chavan, the minister of state for space in 2005 said he told the Prime Minister that the deal should be cancelled last year, Times Now TV station reported.
Additional reporting by Nigam Prusty and Anurag Kotoky; Writing by Henry Foy; Editing by Alistair Scrutton and Ron Popeski