NEW DELHI Federal agents investigating a telecoms licence scandal that may have cost India $39 billion (£24.9 billion) and has engulfed its corporate and political elite searched the home and offices of one of the country's most powerful lobbyists.
The government has struggled to contain the fallout from the sale of lucrative mobile phone licences at below-market prices in 2007-08. The scandal has already brought down a telecoms minister and kept parliament deadlocked over demands by the opposition for a full inquiry into what could be India's biggest graft case.
India's Central Bureau of Investigation (CBI) searched the premises of lobbyist Nira Radia Wednesday, spokesman R.K. Gaur told Reuters.
The CBI is looking at whether bribes were paid during the licensing process and is investigating Radia, who secret tapes suggested lobbied on behalf of her clients for Andimuthu Raja to stay on as telecoms minister after 2009 federal polls.
The coalition government is not at risk of collapsing but the widening case, which saw Prime Minister Manmohan Singh forced to explain to the top court why he did not act earlier, is a major setback, with analysts and politicians expecting more difficult times ahead and few reform bills passed.
Raja resigned after a state audit report said several rules were flouted when the licences were sold on his watch.
The former minister has not been charged and has said he is innocent and was only following norms. Radia, who was questioned by tax authorities, has said she is cooperating.
While the scandal may not deter investor interest in the rapidly expanding market, analysts say delays could see India fall behind in accelerating its economic growth to levels seen in China, keeping several hundred million Indians in poverty.
The Federation of Indian Chambers of Commerce and Industry said Tuesday it was worried that corruption among a few in Asia's third-largest economy could damage the country's image.
The standoff has pushed policymaking into limbo, delaying long-awaited reforms such as simplifying the tax code and easing land acquisition for mining, industry and infrastructure.
The telecoms scandal is the biggest of a series of corruption cases that have battered Singh and his Congress party, straining relations with coalition allies and giving the main opposition Bharatiya Janata Party (BJP) a shot in the arm.
It comes along with the publication of several hours of conversations between Radia and Raja, leading industrialists, politicians and journalists, where they speak of swinging deals, granting favours and ministers taking bribes.
Her influence across corporate India is well known and stems largely from the fact that her firm represents tycoons Ratan Tata and Mukesh Ambani and their respective companies. Tata is among India's most powerful and respected businessmen and Ambani is the world's fourth richest man, according to Forbes magazine.
The recordings do not suggest wrongdoing by Tata or Ambani.
CBI's Gaur also said agents were searching the homes and offices of former telecoms regulator Pradip Baijal, who is now associated with Radia's firm.
The uproar has sparked fears of a witch-hunt against Indian industry, which the prime minister Tuesday sought to calm when he told a conference that his government would provide a "level playing field for private businesses, free from fear or favour."
Singh called on Indian firms to address an "ethical deficit."
Singh also faces trouble from the BJP's threat of blocking the February budget session of parliament if the government does not set up a special parliamentary committee to investigate the 2G telecoms case, which will make it tough to pass legislation.
"(If) you can't run parliament, where will reforms come from?" said D.H. Pai Panandikar, head of think-tank RPG Foundation.
(Editing by Paul de Bendern and Alex Richardson)