India government, communists step back from brink

By Palash Kumar

NEW DELHI (Reuters) - The India government and its communist allies stepped back from the brink on Tuesday, agreeing to meet again this month to resolve a row over a nuclear deal with the United States that threatens to spark a snap election.

A fourth meeting of a panel formed to end the face-off between Prime Minister Manmohan Singh's government and the left appeared to make little progress. But both sides came out putting a brave face on what has been a hot-tempered impasse.

"Where is the crisis? There is no crisis. We are meeting again on the 22nd," A.B. Bardhan, chief of the Communist Party of India, one of the main left parties, told reporters after the meeting.

"We will not let the government fall," Railway Minister Lalu Prasad Yadav said, holding Bardhan's hand up high.

Indian stocks rose more than 4 percent to a record high on Tuesday on news the two sides would meet again.

But while the communists, who keep the ruling coalition in power with their parliamentary support, signaled they were not yet openly parting political ways, many Indians see a snap vote as only a matter of time with neither side wanting to compromise.

The deal would mark a milestone in relations between India-U.S. relations, not the best of friends during the Cold War. It would allow India to import U.S. nuclear fuel and reactors, despite having tested nuclear weapons and not signing the Non-Proliferation Treaty.

The communists insist the deal would make India subservient to U.S. interests, but the government seems determined to seal the accord, potentially its biggest foreign policy achievement.

The pact has been criticized by many outside India, including some members of the U.S. Congress who say it undercuts a U.S.-led campaign to curtail the nuclear ambitions of nations like Iran.

MARKETS RALLY, BUT SHOWDOWN LOOMS

Indian markets had worried the government may announce populist measures that would widen the fiscal deficit and that polls would lead to an unstable coalition.

A snap election could also put the nuclear deal at risk by throwing the country into political limbo, but would not necessarily kill it. The government can still move ahead with the agreement without parliamentary approval.

A final showdown looms, with India facing an informal end-October deadline to begin securing clearances from the International Atomic Energy Agency (IAEA) and others.

The communists have warned the government against talking to the IAEA about placing civilian nuclear reactors under U.N. safeguards, a first step in making the deal operational.

Sonia Gandhi, ruling Congress party head and India's most powerful politician, talked with communist party leaders on Monday night in a surprise meeting and said the government wanted to start safeguard negotiations with the IAEA.