* PM Singh now has minority government, but seen surviving
* Ally demanded backtrack on fuel price increase and retail
* Singh considers partial rollback of hike in diesel prices
* Opposition pushes for confidence vote
By Satarupa Bhattacharjya and Nigam Prusty
NEW DELHI, Sept 19 India's crisis-torn
government looked set to offer a limited rollback of its hike in
diesel prices on Wednesday after a key ally withdrew from the
coalition, reducing it to a minority administration and raising
the risk of an early election.
Prime Minister Manmohan Singh's government is widely
expected to survive the blow to its parliamentary strength, but
its new dependence on regional parties averse to reform will
reduce its room for further steps to revive economic growth.
Mamata Banerjee, the firebrand chief minister of West Bengal
state, announced on Tuesday that she was pulling her party out
of the coalition after Singh stood firm on a slew of economic
reforms, including the opening of India's retail sector to
global supermarket chains.
But a concession to pull her back from the brink before a
Friday deadline appeared to be on the cards after an emergency
meeting at Singh's residence.
A senior source in his Congress party said the government
was considering a partial reduction in last week's 12 percent
increase in diesel prices, which economists had long called for
to rein in subsidies that have blown out the budget deficit.
A government official said the hike of 5 rupees per litre
could be pegged down to 3 or 4 rupees, and a new limit on the
consumption of subsidised cooking gas cylinders may also be
However, Congress party leaders said there would be no
U-turn on allowing investment from foreign retail chains such as
Wal-Mart Stores into the retail sector.
"The government is not in a mood to relent (but) ... there
could be some cosmetic rollback," one party leader told Reuters.
If Banerjee does pull her 19 lawmakers out of the ruling
United Progressive Alliance (UPA), the Congress-led coalition
will be left with 254 seats in parliament, 18 short of a simple
"The beginning of the downfall of the UPA government has
started," said Ravi Shankar Prasad, spokesman of the main
opposition Bharatiya Janata Party (BJP), amid speculation that
the government may fall before its mandate runs out in mid-2014.
GOVERNMENT WILL SURVIVE, BUT FOR HOW LONG?
While Singh can count on two other regional parties outside
the coalition to prop it up with a combined seat tally of 43,
both are also opposed to retail liberalisation, which could once
again endanger a policy that stalled last year amid street
The move on retail was among a series of "big bang" reforms
launched last week. They are seen as crucial to reviving India's
flagging economic growth, reining in a bloated fiscal deficit
and warding off the spectre of a credit rating downgrade.
Singh's renewed drive for reform had cheered investors as a
sign that the government was finally shaking off months of
policy inertia. However, the measures sparked a furious backlash
from Banerjee and other political leaders, who condemned them as
a needless attack on hundreds of millions of poor people.
The BJP said it would try to push for a special sitting of
parliament to be convened to hold a confidence vote, which could
potentially bring the government down. However, lawmakers are
not due to meet for their next session until late November.
Growth in Asia's third-largest economy has languished near
its slowest in three years amid an avalanche of criticism for
Singh's government, which has grappled with a spate of political
scandals since his second term began in 2009.
"The government is in a critical situation but they will
somehow survive for now," said political analyst Amulya Ganguli.
"A minority government cannot, however, last that long. We
may look at elections being brought forward," he said. National
elections are due by 2014, when Singh is expected to stand down.
Several party and government officials had earlier told
Reuters that Congress leader Sonia Gandhi had assessed the risks
of losing coalition allies over the measures and concluded the
government was safe.
Banerjee came to power in West Bengal in 2011, ending more
than three decades of Communist rule in the state. Colloquially
known as "Didi", or "elder sister", Banerjee's supporters hail
her as a champion of India's poor and dispossessed.
But her politics have been a thorn in the side of the
government. Her protests were instrumental in blocking a slew of
economic measures, from retail reform to allowing foreign direct
investment into India's aviation and insurance sectors.