NEW DELHI (Reuters) - The Congress party struck a deal on Tuesday with the Dravida Munnetra Kazagham (DMK) in a row over seat-sharing in the Tamil Nadu elections, ending days of jitters over the stability of a government already hit by a series of crises.
The decision by the DMK is a respite for Prime Minister Manmohan Singh as he battles a series of corruption scandals as well as inflation problems, which have already weakened his government.
The DMK, which had planned to quit Singh's council of ministers, said it would remain in the coalition following the election deal.
"The agreement has been reached. We are very happy about it," the DMK chief M. Karunanidhi told reporters in Chennai where the party is based.
The DMK has 18 seats in parliament and gives the ruling Congress a majority of one seat. A pull-out would have forced the Congress to search for other allies or continue as a minority government dependent on conditional support from other parties.
The coalition was not in danger of collapse even if the DMK ministers left because the party said it would continue to give conditional support to the government.
But instability would hurt government policymaking, already hit by an aggressive opposition which has stepped up pressure, seeing a chance to discredit the coalition in the eyes of voters.
The coalition has been struggling to push reform legislation through parliament, including a bill for a uniform goods and services tax across the country as well as a bill to make land acquisition easier.
The intervention of Congress head Sonia Gandhi, India's most powerful politician who normally stays above the fray, played a key role in the deal struck for the election in Tamil Nadu.
"We will work together. It is a willing alliance," said another DMK leader M.K. Alagiri.
For years the two main national parties, Congress and the Bharatiya Janata Party (BJP), have depended on regional parties for support in government. Several governments have fallen early on scandals and controversies, but since 1999 both Congress and the BJP have survived their full terms.
Ties between the Congress and the DMK have been strained since former telecoms minister A. Raja, a DMK member, was fired for selling 2G telecom licences at low prices, which an audit said had cost the government up to $39 billion.
Analysts said the Congress had toughened its stand toward the DMK after the scandal, one of India's biggest, embarrassed Singh and seen his unimpeachable reputation dashed to the ground.
Under the election deal agreed upon on Tuesday, the Congress forced the DMK to accept its demand to contest 63 seats in the 234-member Tamil Nadu state legislature. The regional group which dominates the state had asked the Congress to run in 60 seats and leave the rest to it.
The BSE Sensex rose 1.2 percent earlier on Tuesday on hopes of a political solution after a fall the previous day when the regional group announced its decision to submit resignation letters of its six ministers in the federal council of ministers.
The cracks in the ruling alliance had reinforced the image of an administration adrift, unable to tackle a culture of corruption or curb inflation that has stoked public anger.
On Tuesday, Singh appeared before parliament for a second time accepting responsibility for naming a civil servant to the country's top anti-graft watchdog, even though the officer himself was facing allegations of wrongdoing.
In February, he bowed to demands for a parliamentary investigation into the scandal after months of protests by the opposition stalled the assembly's last session.
(Additional reporting by Henry Foy in New Delhi and S. Murari in Chennai; Writing by Sanjeev Miglani, editing by Andrew Marshall and Yoko Nishikawa)