Nuclear deal, elections on menu after budget

By Simon Denyer

NEW DELHI (Reuters) - India's ruling Congress party has strengthened its hand against the opposition and leftist allies with a farmer-friendly budget, raising a chance of early elections and reviving hope for a controversial nuclear deal.

Congress leaders had been reluctant to push forward the civilian nuclear cooperation deal with the United States in the face of staunch opposition from their communist allies, who had threatened to bring down the coalition over the issue.

U.S. officials warned this month that time was fast running out for the deal, which would end decades of nuclear isolation for India and allow it to access international nuclear fuel and equipment.

Many analysts had all but written the agreement off.

But Finance Minister Palaniappan Chidambaram upset those calculations on Friday with a budget aimed squarely at elections and India's rural poor, with a $15 billion scheme to waive loans held by 40 million small farmers.

Elections have to be held by May 2009, but Congress now has less to fear from an earlier vote, analysts say, meaning its leader Sonia Gandhi might just call the left's bluff over the nuclear deal.

"It's a pre-election budget, a budget with an eye for early elections, but whether or not they will go for it I don't know," said Mahesh Rangarajan, a political analyst and history professor at Delhi University.

"Sonia Gandhi has to make the decision."