Indian parties seek allies in tight election race

NEW DELHI (Reuters) - India's ruling Congress-led coalition and its main rivals were jostling to secure new allies on Thursday to boost their possible parliamentary numbers after exit polls said both would fall well short of a majority.

The country's largest communist party, considered a key player in a fractured verdict, signalled it would do everything possible to stop the opposition Hindu-nationalist Bharatiya Janata Party (BJP) from coming to power.

Three exit polls on Wednesday showed the Congress-led coalition slightly ahead of the BJP alliance, but both groups needed smaller allies to gain a parliamentary majority.

"The left parties and our allies in the Third Front will not give BJP an opportunity to exploit the post-poll situation to install its government," Prakash Karat, chief of the Communist Party of India (Marxist), told The Economic Times newspaper.

The left has always seen the pro-business BJP, which shot to prominence on a Hindu revivalist campaign in the 1980s, as an extremist religious group.

The probable lack of a clear winner has stoked concerns that the coalition that emerges after a month of voting may be unstable and soft-pedal on the next stage of reforms in Asia's third-largest economy, which is striving to be a global player.

A weak coalition may have little room to manoeuvre on the economy, because a shaky coalition is seen as unlikely to push key reforms such as privatisation and raising the foreign investment limit in the insurance sector.

"There is, of course, also the possibility of the next government being too precariously placed to last full term," the Economic Times said, commenting on the raft of television exit polls released after voting ended on Wednesday

The Indian stock market dropped 2.7 percent and the rupee fell on Thursday after the polls suggested a shaky coalition set against the backdrop of a slowing economy.

"If the Congress's lead was larger, the market may have taken it as a good sign," said Gajendra Nagpal, chief executive of Unicon Financial Intermediaries.

"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."

Exit polls have a mixed history in India. Most predicted a win for the then incumbent BJP government in the last election in 2004 but the BJP lost the election and was ousted.

The count for the 2009 ballot, involving more than 700 million voters, is set for Saturday. Results from all races for the 543-member lower house of parliament should be known then.

A party or coalition needs the support of 272 lawmakers to rule, forcing the Congress and BJP to launch a hunt for new allies. Some analysts say both main alliances have clear plans about which parties they will woo.

"Both groups have made arrangements in case they emerge as the single largest party to form the government," said political analyst Prem Shankar Jha.

The communists, who supported the Congress-led alliance for more than four years before angrily parting ways over a civilian nuclear deal with Washington last year, had ruled out backing any future Congress coalition.

But exit polls showed the election may have bruised the communists, leaving them with about 37 seats, down from more than 60 they won in 2004.

"In order to prevent the BJP, they would rather make an alliance with Congress. That is a practical position and a legitimate one," said political analyst Pran Chopra.

(Additional reporting by Rina Chandran; Writing by Sanjeev Miglani; Editing by Alistair Scrutton and Paul Tait)