India's Congress strikes deal with ally, crisis over

India's ruling Congress party struck a deal on Tuesday with a key ally in a row over seat-sharing in a state election, ending days of jitters over the stability of a government already hit by a series of crises.

"The crisis has been resolved," said a senior leader of the Dravida Munnetra Kazhagam (DMK) party which had threatened to withdraw its ministers from the coalition, sparking worries of further instability in Asia's third-largest economy.

The decision by the regional group to stay in the ruling coalition is a respite for Prime Minister Manmohan Singh as he battles a series of corruption scandals and as well as inflation problems that have already weakened his government.

The DMK has 18 seats and gives the ruling Congress a parliamentary majority of one. 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 intervention of Congress head Sonia Gandhi, India's most powerful politician who normally stays above the fray, played a key role in the deal being struck.

For years the two main national parties, Congress and the Hindu nationalist 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 it looked increasingly likely Congress and the DMK would patch things up, as each was weaker without the other.

Singh's coalition has 273 members in the 545-seat lower house of parliament.

A political party based in the north has said it would consider supporting the coalition if it was approached.

Indian shares rose 1.2 per cent on Tuesday partly 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 coalition crisis came just after the telecoms scam, one of India's biggest corruption scandals, embarrassed Singh and saw his unimpeachable reputation dashed to the ground.

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.

On Monday, Singh appeared before parliament, accepting responsibility for naming a civil servant to the country's top anti-graft watchdog even though the officer was himself facing allegations of wrongdoing.

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