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India gov't tries to defuse crisis over coal scandal

NEW DELHI--The Indian government tried on Monday to defuse a political crisis over sweetheart coal deals that has deepened a perception of dysfunction in the world's biggest democracy and derailed Prime Minister Manmohan Singh's efforts to win back investors.

In a shock forecast, Morgan Stanley warned there was a “very high risk” that growth in Asia's third-largest economy could slow to just 4.3 percent in the 2013 fiscal year unless the government took urgent steps to cut the fiscal deficit and encourage private investment.

Singh's government has struggled to defend itself against allegations that it awarded coalfields potentially worth billions of dollars to private and state power, cement and steel companies in a process that was corrupt at worst and lacked transparency or any element of competition at best.

Under pressure from the prime minister's office, a government committee met on Monday to speed up the review of 58 coalfields whose owners have already been issued notices for missing deadlines to get them operational. The coal ministry has until Sept. 15 to decide whether to cancel the licenses.

Among those that face possible cancellation of coal mining licenses are billionaire Lakshmi Mittal's ArcelorMittal, GVK Power and Infrastructure, India's top aluminum producer Hindalco Industries Ltd. — part of the Aditya Birla Group — and Tata Power.

The furor, dubbed “coalgate” by India's media, has drowned out Singh's efforts to show that his weak coalition government is serious about implementing reforms. For months it has been under fire for dithering while the economy suffers from the impact of the eurozone debt crisis and sluggish U.S. growth.

Morgan Stanley cut its growth forecast for India to 5.1 percent on Monday for the 2012/13 fiscal year. It had previously projected the economy would grow at 5.8 percent in the year ending next March. But in its “bear case” scenario, growth could tumble to 4.3 percent if policy inaction persisted, it said.

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