Indian government wins confidence vote

NEW DELHI (Reuters) - Indian Prime Minister Manmohan Singh's government won a vote of confidence in parliament on Tuesday, ensuring the survival of the ruling coalition and a civilian nuclear deal with the United States.

The government said it would now push ahead with the pact, which would give India access to foreign nuclear fuel and technology and end decades of isolation, as well as work towards reforms to liberalize the trillion-dollar economy.

"This will send a message to the world at large that India's head and heart is sound, that India is prepared to take its rightful place in the comity of nations," Singh told reporters. "I have always said the deal was important and now we know it."

The United States welcomed the support for the deal in India's parliament.

"We will work closely with the government of India in the days ahead for a rapid completion of the ratification process through the International Atomic Energy Agency, the Nuclear Suppliers Group and the U.S. Congress," David C. Mulford, the U.S. ambassador to India, said in a statement.

The Indian government's joy at its victory was tempered by a bribery scandal, after opposition lawmakers interrupted the debate to wave wads of cash to protest against what they said were bribes offered by the government to abstain.

The furor was described as one of the lowest points in parliamentary history, and led to fresh demands for Singh to resign, and catcalls preventing him from delivering his concluding remarks after the two-day debate.

The run-up to the confidence vote in the world's largest democracy was marked by both sides wooing regional and caste-based parties.

The government even renamed an airport to honor the father of a wavering lawmaker. Others, in jail for murder and extortion, were freed for a few days to cast their votes. Some ill members were wheeled in on hospital beds.

But in the end, the government won more comfortably than expected, by 275 votes to 256 with 10 abstentions.

Investors had expected a narrow win for the government, and said the victory could boost markets. The main share index has risen by more than 12 percent in the last four sessions.

"The next task for the government will be how much it will be able to push through on the reforms front," said Agam Gupta, head of trading at Standard Chartered Bank in Mumbai.

"Stocks should start on a strong footing and bonds will also get bought. This is a positive for all the asset markets."

But it will not be plain sailing for Singh.

"The bribery scandal will come back. Expect an opposition offensive in the coming weeks," said political analyst Mahesh Rangarajan.

Nevertheless, analysts said the government should now survive until the end of its term, with polls due by next May.

PUSH FOR REFORMS

The confidence vote was sparked by the withdrawal of the government's communist allies to protest against the nuclear deal, which they said would make India's security and energy policies dependent on the United States.

The Hindu nationalist Bharatiya Janata Party (BJP) said the deal would limit India's chances to test nuclear weapons.

Investors now hope the victory will give the government time to battle rising inflation, which has hit the pockets of millions of poor voters, as well as to pass some economic reforms in sectors like insurance and pensions.

"We have a majority. Therefore, we have to work with other parties to carry forward the reforms process," Finance Minister Palaniappan Chidambaram told reporters after four years when efforts to liberalize were often blocked by the communists.

The deal makes India a de facto nuclear power despite not signing the Non-Proliferation Treaty and conducting nuclear tests in 1974 and 1998.

It could unlock $40 billion in investment over the next 15 years, according to an Indian business lobby group, as India seeks new energy sources to tap its booming economy.

Despite the parliamentary victory, it is unclear if there is enough time for the deal to be passed by the U.S. Congress before the Bush administration leaves office in January.

In Washington, State Department spokesman Gonzalo Gallegos acknowledged Congress had limited time to address the issue this year, but said the Bush administration would push for its approval.

The agreement needs clearance from the governors of the U.N. atomic watchdog and a 45-nation group that controls sensitive nuclear trade.

(Additional reporting by Bappa Majumdar; Writing by Simon Denyer; Editing by Caroline Drees)