28/03/2013 10:14 GMT | Updated 28/05/2013 06:12 BST

Key Ally Withdraws From the UPA Coalition

The withdrawal of a key ally will further weaken the embattled Congress-led government in India which will now be forced to rely on smaller parties to maintain its parliamentary majority. Although we do not expect early elections to be called, the departure of the DMK will hamper prospects for any meaningful reform for the remainder of the current government's term. We expect limited progress on this front until the next general election, which is expected to be held in May 2014.

In mid-March a key member of the United Progressive Alliance (UPA) coalition government, the Dravida Munnetra Kazhagam (DMK) party, announced that it would withdraw from the coalition in protest over against the government's stance on human rights in Sri Lanka. The DMK's move came a day before India voted in favour of a US-backed resolution introduced at the meeting of the UN Human Rights Council (UNHRC) that calls on the Sri Lankan government to do more to effect reconciliation with its ethnic minorities.

However, in the week prior to the UNHRC vote, the DMK called on the Indian government to support stronger wording in the resolution, such as terming the Sri Lankan administrations actions towards the end of the civil war as "genocide". The Indian government attempted to walk a fine line, not wanting to meddle in the affairs of another sovereign state, while also seeking to address the concerns of its own Tamil citizens, who have sought redress for their ethnic brethren in Sri Lanka. In the event it proved impossible to both toughen the language of the UNHRC resolution and preserve support for it. Instead, India issued a public statement accompany its vote urging Sri Lanka to undertake accountability measures that met "with the satisfaction of the international community".

This does not seem to have appeased Tamil politicians, however, who seem to be engaging in a form of "competitive chauvinism" of their own, fighting over who is more vociferous in defending the rights of Tamils in Sri Lanka. In the days following the UNHRC vote the chief minister of Tamil Nadu, Jayalalitha Jayaram (who belongs to the DMK's rival, the All India Anna Dravida Munnetra Kazhagam, or AIADMK) issued a ban against Sri Lankan cricket players participating in matches in Tamil Nadu during an upcoming cricket tournament. The Tamil Nadu state assembly also passed a resolution calling on the federal government to impose economic sanctions against Sri Lanka--a demand that is likely to remain unheeded. Recently, Ms Jayalalitha has grown increasingly strident in her criticism of Sri Lanka and the DMK's breaking with the federal government on the issue may simply be a way to bolster its standing in its home state.

Nevertheless the withdrawal of the DMK's 18 members of parliament (MPs) from the federal government will further narrow the UPA's effective majority in the Lok Sabha (lower house of parliament). With the departure of the DMK the UPA now controls 230 seats in 543-member Lok Sabha. The UPA also has confidence-and-supply arrangements in place with regional parties which hold 47 seats between them, bring its effective tally to 277 members.

The government thus faces a period of uncertainty. The DMK had been a source of crucial support for the Congress' reform agenda, backing contentious moves such as the liberalisation of foreign investment in the retail and aviation sectors. The DMK has said that it will not oppose the government but it remains to be seen whether it will continue to support reforms from outside the coalition. This lack of a reliable parliamentary majority means that the UPA is unlikely to implement any meaningful structural reforms before the next general election, which is due in May 2014. India's stock markets acknowledged as much, with the BSE Sensex falling to a four-month low immediately after the DMK's announcement.

The withdrawal of support has also raised the prospect of elections being called ahead of schedule, although we believe this is unlikely. The Congress will be keen to avoid going to the polls amid an economic slowdown, and the main opposition Bharatiya Janata Party has made only limited progress towards preparing for an election campaign (for example, it has yet to anoint a prime ministerial candidate formally). Both parties are still working to enhance their support bases, and with a number of state-level polls scheduled to be held during the remainder of 2013, neither is likely to be keen to advance the national polls. The UPA is therefore likely to survive until next year, although this will come at the cost of a continued dearth in policymaking.