(Adds details, denial of resignation offer)
* PM appoints top legal official to defend him
* PM accused of “inaction” in corruption scandal
* Opposition stalls parliament, reforms in limbo
* Spokesman denies rumours Singh offered to quit
By Paul de Bendern
NEW DELHI, Nov 19 (Reuters) - Prime Minister Manmohan Singh has turned to India’s top legal official to defend him at the Supreme Court over why he failed to probe what could potentially emerge as the country’s biggest corruption scam.
The last-minute change to have the attorney general represent the prime minister suggests increased concern within the ruling Congress party over a widening scandal that has touched both political and corporate India. [ID:nSGE6AH0FR
Congress party officials closed ranks behind Singh on Friday and his media adviser Harish Khare told Reuters rumours that the prime minister had offered his resignation to party chief Sonia Gandhi were “totally incorrect. Totally rubbish.”
The telecoms scandal is the biggest challenge to Singh, 78, since he became prime minister in 2004, and how the next few days unfold will be key to his political survival.
Were Singh to resign it would not lead to the unravelling of the coalition government as much of the political decision-making lies with Sonia Gandhi and a large part of daily government decisions are handled by Finance Minister Pranab Mukherjee.
Telecoms Minister Andimuthu Raja was sacked at the weekend after months of pressure from the opposition and Indian media.
Raja is accused of selling telecoms licences too cheaply, potentially losing the state $31 billion in revenues, according to a government audit. Raja has denied the accusations.
Raja is a member of the DMK, a regional party from Tamil Nadu that helps give the Congress party a majority in parliament. The opposition claims Singh failed to act because he feared upsetting his coalition partner.
Telecom shares suffered significant losses on Thursday on investor uncertainty, and the case has already led to opposition parties halting parliament proceedings, thereby threatening to freeze passage of key legislation or approving additional spending plans by the government.
Indian firm Swan Telecom, which has since been bought by the UAE’s Etisalat , and several other companies, which now are part of Telenor’s India operations, were among those singled out in the government audit report regarding discrepancies in their lience applications.
On Tuesday, the Supreme Court took the rare step of publicly criticising Singh for “alleged inaction” in taking 16 months to decide if Raja should be charged and investigated, a blow to the image of a prime minister seen as one of the country’s most honest politicians.
“Manmohan Singh has certainly squandered some moral capital over this spectrum scandal,” said an editorial in The Indian Express on Friday.
“The image of integrity is arguably the biggest strength he has, and by letting this scam fester for so long, the prime minister and the Congress party have put that at risk.”
Attorney General G.E. Vahanvati must file an affidavit on behalf of Singh by Saturday, according to a court request.
Vahanvati will then defend the prime minister in person at the Supreme Court on Tuesday, and he is expected to say Singh followed correct procedure. Singh, who has not commented on the court criticism, is not expected to attend.
The court wants to know why Singh remained silent on a plea by an opposition member of parliament to prosecute Raja. The court cannot punish Singh because no case has been filed against him, but any criticism would be a blow to his credibility.
Rahul Gandhi, Sonia’s son and seen as the primeminister-in-waiting, defended Singh, saying there was no reason for him to be embarrassed, according to media reports.
While Singh and his coalition government are likely to survive the scandal, the criticism has tarnished Singh’s image and is expected to further weaken the federal government’s ability to move key economic reforms through parliament.
Singh, a former finance minister who led the drive to open up India’s economy in 1991, has long been criticised for being a weak prime minister and for the slow pace of economic reforms.
A series of corruption scandals, infighting between coalition partners and a more assertive opposition have forced the government on the defensive in its second term of office.
Foreign investors are still piling into India, attracted by its huge market potential and growth forecasts for coming years.
Raja is the third senior government official to lose his job in recent weeks over allegations of corruption.
The opposition wants a parliamentary probe after a report from the government auditor said the state may have lost up to $31 billion in revenues, roughly equivalent to the defence budget, in the granting of licences in 2007-2008. The process also violated several rules, the report said.
India was ranked 87th in Transparency International’s 2010 ranking of nations based on the perceived level of corruption. India lies behind rival China, which is in 78th place. (Additional reporting by Manoj Kumar and Henry Foy; Editing by Bryson Hull and Sanjeev Miglani)