Slender lead for India

By Surojit Gupta

NEW DELHI (Reuters) - The ruling Congress-led coalition was slightly ahead of the opposition Hindu-nationalist alliance as voting ended in India's general election but both fell short of a parliamentary majority, TV projections said.

A raft of exit polls on Wednesday showed either alliance would need new partners, renewing concerns that a shaky coalition would emerge as Asia's emerging powerhouse faces economic slowdown and instability in neighbouring Pakistan.

The projections could spark market jitters in the days ahead of the official results, due on Saturday.

Exit polls have had a mixed record in the past among the electorate of more than 700 million people. They were way off the mark in the last 2004 general election.

Prime Minister Manmohan Singh's Congress party-led coalition is ahead with 185-205 seats in the 543-member lower house of parliament, an exit poll by CNN-IBN television said.

An alliance led by the opposition Bharatiya Janata Party (BJP) would take 165 to 185 seats, leaving both the main political formations far short of the 272 needed for a majority.

"We are looking at political uncertainty and horse-trading," said Amulya Ganguli, a New Delhi-based political commentator.

If confirmed by actual results, the outcome would mean a fall in Congress alliance seats compared with 2004 and a boost in seats for the BJP-led alliance, muddying waters further.

The centre-left Congress, which has been criticised for failing to carry out any major reforms during its five years of rule, could be even more vulnerable to the competing demands of regional groups in return for support.

Any new government will face an uphill task to lift growth amid a slump, a rising fiscal deficit and contracting demand.

The BJP, which made its name promoting Hindu revivalism, has also traditionally enjoyed support from the business and middle class that see it as more willing to carry out bold reforms, including the privatisation of state-run firms.

Both Congress and the BJP are seen as taking broadly similar positions on Pakistan, with neither expected to give much ground until they are convinced Islamabad has dealt with the militants India blames for an attack on Mumbai last November.

BALANCE OF POWER

The rupee fell 0.9 percent over the previous close as investors pared positions on concerns the election may not produce a clear winner. Shares were down 1.1 percent.

Federal bond yields fell with investors drawing comfort from the slender lead of the ruling Congress ahead in the race to form a government. The benchmark 10-year bond yield ended at the day's low of 6.33 percent.

More volatility could come.

"If the Congress lead was larger, the market may have taken it as a good sign," said Gajendra Nagpal, CEO of Unicon Financial Intermediaries in New Delhi. "But now that it is just a slender lead, the market may become uncomfortable and think there might be more of a mess in the offing."

The "Third Front," a loose coalition of smaller parties spearheaded by the communists may yet hold the balance of power. The group could get 110 to 130 seats, CNN-IBN said.

The Third Front includes the caste-based Bahujan Samaj Party (BSP) whose maverick leader Mayawati harbours prime ministerial ambitions. The poll projected BSP winning 25-35 seats which may be enough for her to leverage a key role in a new government.

The election, projections showed, may have bruised the communists, leaving them with about 30-40 seats, down from more than 60 in 2004, weakening their ability to hold the balance of power in any new government.

Congress opened the door to reaching a deal with the left.

"All possibilities are open. We must not forget we worked with the left for four-and-a-half years," Kamal Nath, Congress' federal trade minister said, referring to the communist support for the outgoing government until they quit last year.

The communists quit Singh's coalition last year to protest against a nuclear deal with Washington.

(Writing by Sanjeev Miglani; editing by Alistair Scrutton and Andrew Roche)

Article Published: 13/05/2009