By Sanjeev Miglani
NEW DELHI (Reuters) - Leaders of a key party in India's ruling coalition travelled to Delhi Monday to formally quit the government, a move that will force a weakened prime minister to find alternative alliances to stay in power.
The move by the DMK party, announced over the weekend, comes at a time when Manmohan Singh is battling rising anger over a raft of corruption scandals and persistently high food inflation.
"We are going to the prime minister... and submit our resignations," said DMK minister M.K.Alagiri. "We will not accept anything that will compromise our self-respect."
Indian shares slid 1.7 percent Monday, with financials leading the decline, as domestic political worries added to the unease over Libyan turmoil and wobbly Asian stocks.
"The DMK's withdrawal is a negative but not a very big one. While investors don't like the uncertainty, they know that the government is not in danger," said Gajendra Nagpal, CEO of Unicon Financial.
"The unrest in the Middle East and rising oil prices are a bigger threat right now."
Singh's Congress-led coalition government is not in danger of collapse because the southern DMK has said it will continue to offer conditional support even after its six ministers quit.
The Congress party, in addition, can seek support from other regional groups to boost its numbers in parliament, as few want to face an election more than three years ahead of schedule.
One of the political parties based in the north has said it would consider support if it was approached.
FURTHER TROUBLE AHEAD
Still, the DMK's decision to quit the cabinet will further hobble the government's ability to push through economic reforms as it becomes dependent on new groups for support.
The government's efforts to push reforms including a uniform sales and services tax have been stymied by a lack of support from the opposition, which has seized on the corruption scandals and the rifts in the coalition to force a policy paralysis.
While the trigger for the break with Congress is a dispute over the number of seats each party will contest in electrons in the DMK's home state of Tamil Nadu next month, political analysts say ties have been strained since the DMK was implicated in a massive telecoms scandal.
Concessions to run networks in the world's fastest growing mobile phone market were sold at rock-bottom prices by the telecommunications ministry headed by A. Raja, a DMK member, which an audit said had caused a loss of $39 billion in revenue.
Raja was sacked and is now in prison, but there is concern within the party that the federal investigation into the scandal may touch other top leaders of the DMK, which is led by strongman M. Karunanidhi and members of his family.
The party has denied any wrongdoing.
The scandal, which is considered independent India's biggest in terms of losses caused to the nation, has deeply embarrassed Singh, who has seen his unimpeachable reputation dashed.
Analysts say Congress appears to have toughened its stand toward the DMK by refusing to give in to its demands either on seat sharing in the local election or the investigation into the scandal.
(Editing by Paul de Bendern and Alex Richardson)