MUMBAI // India’s government and opposition parties were due to meet on Tuesday to try and end a deadlock in parliament over a telecoms graft scandal that has hit shares in several firms and stalled debate on economic and reform bills.
India's image as an investment destination has been tarnished and the government's ability to push through legislation has been crippled by scandals, including a bribes-for-loans probe that saw eight executives arrested last week.
New Delhi may have been deprived of up to $39 billion by selling cellular licences too cheaply, and late on Monday the country's new telecoms minister vowed action against holders of 85 licences that may not have met eligibility criteria and others that have failed to meet rollout requirements.
Shares in property firm Unitech , which has a cellular joint venture with Norway's Telenor , and Videocon , which was among the telecom licence holders named in a government audit, fell more than 6 per cent in early trade. The main index was down 0.68 per cent.
A Central Bureau of Investigation (CBI) source with direct knowledge of the matter said its probe in the bribes-for-loans case, in which the arrested include executives from public-sector lenders, would be widened further to look into other state banks.
Asia's third-largest economy, growing at 8.5 per cent, has been beset by a wave of scandals in the past few months, including one related to India's hosting of the $6 billion Commonwealth Games, with the government criticised for mismanagement and ineptitude.
The CBI, which is investigating corruption scams linked to the Games, on Tuesday raided the home of its organising secretary and Games committee offices in relation to a probe into $21.7 million of misplaced funds.
The speaker of the powerful lower house of India's parliament has called for an all-party meeting at 1:30pm (0800 GMT) on Tuesday, according to an official at the speaker's office.
The opposition has halted parliament sessions since November 9 over its demand for a joint parliamentary committee (JPC) probe into the telecoms licence scandal, which triggered the resignation of the telecoms minister.
Parliament was supposed to discuss a key bill for additional spending of about $9.8 billion to ensure the functioning of government, including interest payments on government debt and subsidies on food and fuel. If the government fails to push it through, it amounts to a defeat.
The scandals have clouded India's reputation as a place to do business, but analysts say the returns are worth the risk.
A strong economy and the sheer size of India's market, with a rapidly expanding, wealthier middle class, ensure it will remain attractive to long-term investors.
"India is an extraordinary market opportunity," Ron Somers, head of the US-India Business Council, told Reuters Insider TV.
"It's not a place to do business for the faint-hearted. This is a long-term commitment."
Earlier this month, the Supreme Court criticised Prime Minister Manmohan Singh for his apparent delay in probing the widening scandal, potentially one of the biggest to hit India.
Steps outlined Monday by new Telecoms Minister Kapil Sibal to ask holders of 85 licences to demonstrate why they should not be revoked my help unblock the impasse in parliament.
In the bribes-for-loans probe, a special CBI court on Monday in Mumbai ordered the eight executives to remain in custody until Friday.
The CBI last week said Money Matters Financial Services Ltd , an Indian brokerage, acted as a "mediator and facilitator" of corporate loans and other facilities by bribing bank officials. Three of its executives, including its CEO, were among those arrested.
Shares in Money Matters were down by their daily 10 per cent limited on Tuesday and have lost more than half their value since before the CBI probe came to light last week.
On Monday, the company said in a statement that proceeds from a $97 million share sale last month had been placed in a bank term deposit and would not be withdrawn or managed without prior board approval. Company officials have not otherwise been reachable for comment.
Those arrested in the bribes-for-loans probe last week include senior officials at state-run Central Bank of India , Punjab National Bank and Bank of India for allegedly accepting bribes for sanctioning loans. Last week the CBI widened its probe to 21 firms for links to the bribes-for-loans scandal.
Several leading Indian firms were named in court documents filed by the CBI last week, including wind turbine maker Suzlon Energy , infrastructure company HCC's Lavasa unit and real estate firm DB Realty . All three have denied any wrongdoing.
Corruption in India gained global attention in early 2009 when the founder of Satyam Computer Services, one of India's top software firms, resigned after admitting profits were falsely inflated for years.