NEW DELHI, March 6 (Reuters) - India's embattled prime minister on Sunday tried to patch things up with a key ally that said it would quit his cabinet, aiming to avert another crisis for a government shaken by a raft of corruption scandals.
The southern Dravida Munnetra Kazhagham (DMK) party, which gave the Congress party-led coalition a slim majority in parliament, said on Saturday it was pulling out its ministers because of a dispute over seats to be contested in state assembly elections next month.
Analysts, however, said the move was more likely linked to a massive telecoms graft scandal that has implicated the DMK and which has called into question Singh's ability to govern Asia's third largest economy.
Congress Secretary-General Ghulam Nabi Azad was flying to the southern city of Chennai to meet with leaders of the DMK to try and resolve the crisis, a party official said.
The government is not under immediate threat of collapse because the DMK ministers, who handle departments ranging from textiles to chemicals and fertilisers, have yet to officially tender their resignation and the party has said it would offer issue-based support.
But if the DMK were to quit, the government would become more vulnerable to pressures from other coalition partners.
The ministers' withdrawal from the cabinet could complicate the government's efforts to pass the 2011-12 federal budget through parliament's current session. The government would fall if its loses the budget vote.
The DMK's move would also make it harder for the government to pass reform bills including a uniform sales and services tax, a key peice of tax reform that will cut busines costs and boost government revenues.
Regulatory concerns, combined with the global economic slowdown have hit foreign direct investment in India and contributed to making the Mumbai stock exchange the worst performing of the world's major share markets.
Singh's government is also under attack from the opposition over its inability to tackle rising prices, especially food inflation which, hit 18 percent in December, is among the highest in Asia.
Singh must either depend on the DMK to support bills or seek other alliance partners.
"The DMK's move to break the alliance is not about seat sharing. It is about the investigation into the 2G scandal," said political commentator Cho Ramaswamy referring to the sale of 2G mobile licenses.
The DMK, which said it was upset over a seat sharing plan in its stronghold southern state of Tamil Nadu, is at the centre of the $39 billion telecoms licensing scandal in which the former telecoms minister A. Raja, a DMK member, faces possible charges. .
Raja was sacked and is now in prison, but there is concern that the federal investigation into the scandal may touch on other top leaders of the DMK which is led by strongman M.Karunanidhi and members of his family.
The scandal in which telecoms concessions were granted at rock bottom prices has already been widened out to include a probe into a TV channel linked to the DMK. .
"The alliance is wounded. The Congress and the DMK have become a libility for themselves," said Arun Jaitly, a leader of the main opposition Bharatiya Janata Party which has steadily increased the pressure on Singh.
Singh has seen his unimpeachable reputation dashed following the scandal, said to be independent India's biggest scam. Last week he suffered another setback when the Supreme Court rejected his appointment of a tainted civil servant as the head of the country's main anti-graft agency.
(Editing by Miral Fahmy)
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