Finance Minister P Chidambaram was the bone of contention that forced Dravida Munnetra Kazhagam leader and Tamil Nadu Chief Minister M Karunanidhi to issue the sensational threat on Thursday, which once again proved that Prime Minister Manmohan Singh's [Images] authority is fast eroding.

Importantly, Dr Singh relenting to the impolite threat has shown that he is not getting the desired political support to take some firm decisions from Congress president and United Progressive Alliance chairperson Sonia Gandhi [Images].

The threat drama has also shown that the Congress has not yet learnt the art of managing coalition allies. If Sonia Gandhi has refused to back the prime minister, it signifies that her commitment towards economic reforms is shaky and notwithstanding a snub from the ally she and her party want to stick to power.

'The prime minister is said to be very upset,' a minister, who met Dr Singh on Thursday, said.

On June 22, the Cabinet Committee of Economic Affairs chaired by Dr Singh and attended by Finance Minister P Chidambaram, decided to sell 10 per cent shares in Nalco and Neyveli Lignite Corporation [Get Quote]. DMK Minister Dayanidhi Maran was not invited to the meeting. He and other DMK ministers were out of the country when the decision was taken.

Disinvestment is a big issue in Tamil Nadu politics. NLC is a profit-making Public Sector Unit and has a workforce of around 30,000 out of whom 23,000 are blue-collar labour. The Corporation generates 2,490 megawatt power and posts an average profit Rs 1,000 crore every year.

P Chidambaram's plans to go ahead with the disinvestment of NLC without consulting DMK ministers either at the Centre or in the state, hurt Karunanidhi's ego. His rivalry with the DMK has resulted in a political set back for Dr Singh.

A senior DMK leader in the Lok Sabha told rediff.com, "You (Chidambaram) are creating a problem and want us to solve it. How is it possible? Do not push problems to our doorstep (in the state) without consulting us."

He said DMK was not against economic reforms but since DMK was running the government in Tamil Nadu, it had a duty to respond to people's sensitivities.

"How can you expect us to end the strike at NLC? Thousands of workers were not taken into confidence by Chidambaram before announcing the decision. He is not even ready to meet them. Is this the way you lead the economic reforms," he asked.

He said: "Since the last two days, Karunanidhi has been writing to the prime minister. We neither got a reply from Dr Singh nor is Chidambaram coming down to Tamil Nadu to meet 20,000 striking workers. What do you expect from the state government? Who is facing the law and order problem due to strike?"

The Centre responded when on July 3, the friction between Chidambaram and Karunanidhi reached its climax.

The Prime Minister's Office issued a statement that said: 'In response to a request from the Tamil Nadu Chief Minister Karunanidhi, the prime minister has assured that while disinvesting 10 per cent of the shares of Neyveli Liginite Corporation, the government will provide for sufficient allocation of shares to the employees, as desired by them, on a preferential basis so that they have a stake in the future of the Corporation.'

"Karunanidhi targeted Dr Singh because he was angry with the prime minister's current confidant Chidambaram," a Congress leader said at the party headquarters.

Karunanidhi unambiguously issued a threat in Chennai on Thursday stating: "When the Centre is unable to accept the NLC workers' demand, we are considering whether we should continue in the UPA government and accept responsibility for the decision."

In other words, the DMK supreme told Dr Singh -- "You accept my demand to shelve the divestment plan of NLC or here I go."

Dr Singh succumbed by compromising with his vision of economic reforms in the country. Now, Opposition leader Jayalalithaa has demanded that Dr Singh should not merely freeze the plan to divest NLC but he should simply cancel the plan.

While rolling back his decision, Dr Singh has adversely affected the increasing confidence of the investing community as well. Although, the government would not have fallen if the DMK would have withdrawn its support but it would have shaken the power establishment both within and outside the UPA.

Dr Singh's loss of face was inevitable also due to the psychological pressure and the so far unfounded fear of the formation of a Third Front by the Left parties. The prime minister tried to calm down Karunanidhi even after the issue of a threat but the latter did not budge because Chidambaram had already damaged the balance.

Moreover, DMK party workers were putting pressure on Karunanidhi that All India Anna Dravida Munnetra Kazhagam chief Jaylalithaa was taking advantage of the issue by strongly supporting the strike. It may also be recalled that during his previous visit to Tamil Nadu, Chidambaram had made the selling off of few shares of NLC a prestige issue.

On the sidelines, the issue of an impatient state Congress party was also on Karunanidhi's mind. Since the last 40years, the Congress has not tasted the power in Tamil Nadu. They want to be inside the government and enjoy power. They point out the fact that DMK was having power in the state and Centre and was getting stronger.

Karunanidhi has cut the state Congress' demand to size by sending signals that he can afford to withdraw from Centre. Also, Karunanidhi wants his son Stalin to build his image within the state so that in future his party's ministers at the Centre can be sacrificed if needed, including Maran, his grand-nephew.

However, his main target was Chidambaram who the DMK thinks is savouring an idea of becoming the chief minister of the state. A reliable source in Congress party said Karunanidhi's action was shameful but not at all surprising. The Tamil Nadu chief minister was spectacularly successful in getting what he wanted from none other than the Indian prime minister in just a few minutes.

While the striking workers of NLC may be rejoicing that the divestment plan of their company has been shelved, it has resulted in weakening the country's prime minister.