NEW DELHI (Reuters) - A widening corruption scandal has exposed Prime Minister Manmohan Singh as an honest but ineffectual leader whose failure to dominate has underlined India's weak political system, hampering strong policymaking.

In the rough and tumble of Indian politics, Singh has struggled to find his way, his office undermined by a complex leadership structure with his Congress party boss Sonia Gandhi at the top, and the compulsions of coalition politics.

His only comments on the brewing scandal are telling: "As prime minister I sometimes feel like a high school student going from one test to another."

While the row over the granting of telecoms licences that prompted Telecoms Minister Andimuthu Raja's exit does not threaten the government's survival, it underscored the fragility of a fickle coalition despite the Congress party's overwhelming re-election in 2009.

At stake is not only the image of the Congress party, but the political legacy of an honest, erudite prime minister who stands accused by the opposition of tolerating corruption.

Raja is accused of selling licences at deliberately low prices to companies, some of which were ineligible, a charge he denies. The opposition says Singh turned a blind eye because Raja was from a political party necessary for government surivival.

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"The whole controversy affects his (Singh's) incorruptible image," said V.B. Singh, honorary fellow at Centre for Study of Developing Societies, a New Delhi-based think tank.

"Though it affects the Congress much more, it also drags in the prime minister's name."

The scandal has also weakened Singh's ability to move key economic reforms through parliament, further pushing back a series of reforms including introducing comprehensive tax reforms and opening up the retail sector to foreign companies.

No major reforms were expected this session but the government planned to pass a banking laws amendment bill, which would improve the capital raising capacity of India's biggest commercial lender and strengthen central bank regulatory powers.

Analysts now expect the government to struggle in the rest of its second term in office to regain momentum and push through controversial political and economic reforms, like modernising British colonial-era labour laws and opening up the financial sector.

A RELUCTANT PRIME MINISTER

Singh's reputation was forged in his time as finance minister in the 1990s, when he pushed through a series of economic reforms which set the stage for India's subsequent boom and entry onto the world stage as a rising economic power.

Then in 2008, Singh, put his job on the line to secure parliamentary approval for a civilian nuclear deal with the United States, a rare act of toughness from the soft-spoken 78-year-old leader.

But he had seemed an unlikely choice for prime minister, thrust into the limelight only because Sonia turned down the top job after winning elections in 2004.

Time and again, Singh, an Oxbridge-trained eminent economist, seemed dwarfed by Sonia. And constant coalition-juggling with fickle allies has also distracted from strong governance. Singh is dependent on Raja's party DMK for parliamentary majority.

Each time there is a crisis, veteran politician Finance Minister Pranab Mukherjee comes to the rescue. He is now trying to get opposition parties to end the parliamentary deadlock.

"They say nice men finish second - this applies to Singh. He is just too nice to be able to stop allies or inept ministers from running amock," said political commentator Amulya Ganguli.

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But much of Singh's rule has been marked by a sense of policy drift, often capitulating under opposition pressure or street protests on issues ranging from freeing farm and diesel prices to pushing through tax reforms.

Add to that a series of corruption scandals, infighting between coalition partners and a more assertive opposition and Singh has largely been on the defensive in his second term of office, which is almost sure to be his last as prime minister.

The Congress party has pledged to crack down on graft, but it has been put on the defensive in recent weeks when it was forced to fire three senior officials over corruption allegations, including the problem-riddled Commonwealth Games.

Sonia and her son Rahul, seen as the next prime minister, have said conspicuously little on corruption, clearly seeking to stay away from any controversy as the Congress party prepares for a time after Singh.

Many put down Singh's shortcomings to lack of political acumen, though abroad he is much respected by world leaders. The grey bearded, bespectacled leader has never won an election and sits in the mostly nominated upper house of parliament.

Critics say his career, including as U.N. civil servant and government bureaucrat, underline a life where career advancement has carried more weight than pursuing strong political ideals.

"His honesty is not questioned, what is questioned is his political judgement," said Ganguli.