Earlier in the day, Trinamool Congress leader Mamata Banerjee announced her decision to walk out of the government and the National Democratic Alliance, (NDA) demanding Mr Fernandes' resignation, while reassuring the NDA that she wants to "strengthen the hands of Prime Minister Vajpayee".

A clutch of opposition parties came together under the leadership of CPM leader Jyoti Basu to announce the formation of a new political front, dubbed People's Front. Samata party president Jaya Jaitley resigned from party leadership.

While these events are not expected to immediately impact on the parliamentary support base of the 308-member NDA, they queer the pitch for political realignment on the eve of the Congress Party's national convention in Bangalore, bringing the medium-term future of the Vajpayee government into question. Having smelt blood, the opposition is unlikely to cool down after having secured Mr Fernandes' ouster. The focus could well shift to Mr Vajpayee himself.In the 545-member Lok Sabha, the NDA constituents account for 308 members.

The ruling coalition requires atleast 272 MPs to remain in office. Trinamool Congress has nine MPs and Samata party has 11 MPs. There is, therefore, no immediate threat to the future of the NDA government.

The 28-member Telugu Desam party has assured the Vajpayee government of its support.

With Mr Fernandes' resignation, Ms Banerjee may remain in the fold. However, the mounting anti-corruption and anti-economic reform campaign of the Left Front and the rapid realignments around the Congress Party, re-open the prospect of a `mahajot', the coming together of Congress factions, in West Bengal. Another spanner in the works is the defiant posture struck by Mr Fernandes who has demanded an enquiry into the roles of "all those named" in the Tehelka tapes.

On a day of fast-moving political developments in the wake of the Tehelka.com revelations, some of the constituents of the former United Front, including the two Communist Parties (CPM and CPI), the Samajwadi Party and the Janata Dal (S) addressed a joint press conference to announce the creation of the People's Front.

Significantly, however, none of the former Prime Ministers of previous Third Front governments, namely Mr V P Singh, Mr Chandra Shekhar, Mr Deve Gowda and Mr IK Gujral, were present at the press conference, though the People's Front spokesmen claimed that they had their former leaders' blessings. The initiative appeared to be the brainchild of CPM general secretary HK Surjeet and Samajwadi leader and former defence minister Mulayam Singh Yadav.

A parallel political event during the day was a meeting between the Prime Minister and President KR Narayanan, held at the instance of the President.

The two reportedly discussed the political fallout of the Tehelka.com expose, and may have also discussed Mr Fernandes' continuation in government.

While New Delhi witnessed a rash of political developments on Thursday, the main opposition party was busy preparing for its national convention in Bangalore. The Congress Party is expected to respond to Thursday's developments at its Bangalore meeting.

While there is no immediate threat to the Vajpayee government, informed sources in government believe that major post-Budget policy initiatives, including a huge pending legislative agenda, could be hurt by the current political impasse. Lok Sabha speaker GMC Balayogi has convened a meeting of party representatives in Lok Sabha to discuss ways in which the Lok Sabha can continue its legislative work.

Senior government officials also worry that many of the economic reform proposals in the Budget may get derailed by political uncertainty and the increased bargaining power of marginal political groupings.There is specific concern about the fate of the labour law reform proposals.

Union finance minister Yashwant Sinha had included the proposals in the face of opposition from the Union labour minister.

It is also learnt that many business leaders have expressed the view that increasing the compensation for retrenched workers from 15 days to 45 days would adversely hurt them.

Economic analysts believe that while the Union Budget would have helped improve India's sovereign credit rating, the subsequent developments on the stock market and the ongoing political crisis may hurt India's credit rating.