Foreign Minister Natwar Singh is the first political casualty of a UN independent inquiry committee report released two weeks ago that revealed global corruption in the humanitarian programme that was meant to help sanctions-hit Iraq in the aftermath of the first Gulf war in 1991.
Prime Minister Manmohan Singh, who summoned the Foreign Minister for an hour-long meeting, has named him minister without portfolio, said an official in the Prime Minister's Office. He spoke on condition of anonymity.
Singh left the prime minister's residence, where the meeting was held, without speaking to reporters. He simply waved at them before getting into his car.
The independent inquiry, headed by former US Federal Reserve Chairman Paul Volcker, has accused more than 2200 companies and prominent politicians worldwide of colluding with Saddam Hussein's government to milk the oil-for-food programme of $1.8 billion in kickbacks and illicit surcharges.
Volcker has accused 2200 firms
and politicians of being involved
It named Singh and the ruling Congress party as "non-contractual beneficiary".
After initially treating the report with scepticism, the Indian government earlier on Monday ordered a judicial investigation led by former Indian chief justice RS Pathak to look into the allegations against Singh. The move gave the first indication that Singh's position in the Cabinet had become untenable.
Hours earlier on Sunday, the government also named an envoy to investigate the credibility of Volcker's report, indicating that it is not entirely convinced about its veracity.
NDTV, a local television news channel, said Singh will get his portfolio back if Pathak's investigation clears him. No time frame has been set for the investigation, he said.
Sanjaya Baru, the prime minister's spokesman, denied the investigation was aimed at deflecting pressure from Singh,
"It is embarrassing for the nation. We have demanded that Natwar Singh be removed from the Cabinet"
Lal Krishna Advani,
who is facing opposition calls for his resignation.
"A former chief justice doesn't do cover-ups," he said.
Volcker's report has become a major embarrassment for Singh, a 74-year-old former diplomat who has led India's campaign for a permanent seat on the UN Security Council.
Also Monday, the Congress party said it had written to UN Secretary-General Kofi Annan seeking "all such documents on the basis of which the Volcker committee made the allegations".
Meanwhile, opposition parties met Indian President APJ Abdul Kalam and demanded Singh's ousting.
"It is embarrassing for the nation. We have demanded that Natwar Singh be removed from the Cabinet," opposition leader Lal Krishna Advani said after the meeting.
A defiant Singh has, however, rejected calls for his resignation, insisting that he received no favours or bribes from Saddam's government, or benefited from the oil-for-food programme.