NEW DELHI (Reuters) - India's beleaguered government caved in to popular fury over corruption on Wednesday after thousands protested across the country, granting permission for a self-styled Gandhian crusader to stage a 15-day hunger strike in public.

A supporter of Anna Hazare wearing a handcuff holds a portrait of Hazare as he attends a protest against corruption in Hyderabad (reuters_tickers)

Anna Hazare was arrested on Tuesday, hours ahead of a planned fast to demand tougher laws against the graft that plagues Indian society from top to bottom.

But the jailing of the 74-year-old campaigner sparked nationwide protests and put Prime Minister Manmohan Singh's government on a backfoot, forcing it to relent.

"We are India's youth. We are with Anna. I've already seen corruption at this age," said 21 year-old Sweta Dua outside the jail. "In my college people got admitted despite being unable to clear the required cut-off scores, simply by paying money."

The Congress party-led government, facing one of the most serious protest movements since the 1970s, at first agreed to release Hazare, but he refused to leave the high-security Tihar jail until he won the right to lead an anti-corruption protest.

Crowds by the jail erupted in joy after a deal was struck to allow Hazare to fast in public, reached early on Thursday, shouting "I am Anna" and "We are with you."

An impromptu stage was set up with musicians playing for the crowds.

"Anna wishes to congratulate everyone as we have started a great momentum for this fight against corruption," said Arvind Kejriwal, a social activist and close aid of Hazare.

Hazare is expected to postpone his public fast until Friday because the Ramlila Maidan grounds in central Delhi are not ready to host massive crowds, his advisers told reporters.

A medical team is on standby to monitor Hazare's health as he has already begun his fast in jail and a sharp deterioration could further worsen the crisis for the government, although there were signs a compromise would eventually be reached.

"It's an indefinite fast, not a fast-unto-death. He will be there as long as he can sustain it," said Kiran Bedi, a former senior police officer and a member of Hazare's team.

The protests across cities in India, helped spread by social networks, have not only rocked the ruling Congress party, they have sent shockwaves through the political class.

Students, lawyers, teachers, executives and civil servants have taken to streets in cities and remote villages stretching to the southern end of the country.

"The movement has meant politicians realise that they cannot fudge these issues or ignore public opinion any longer," said Vinod Mehta, editor of the weekly Outlook magazine.

"It has succeeded in concentrating the minds of politicians across the political spectrum on one issue for the first time."

A weak political opposition means that the government should still survive the crisis, but it could further dim the prospect for economic reforms that have already been held back by policy paralysis and a raft of corruption scandals.

SOCIAL NETWORK REVOLUTION

One Facebook fan page for Hazare has 285,000 followers, while the India Against Corruption page on Facebook has more than 350,000 followers where links and messages of support are posted. Several Twitter accounts have been set up by supporters to send out messages of where and when to protest.

A website petitioning for freedom of Hazare and against graft (www.avaaz.org) had signed up 170,000 people in 24 hours.

India's 24-7 news networks, competing to dig up the latest corruption scam, have played a vital role in whipping up the Hazare story. Protests have also sprung up in the United States and in Britain, both countries with large Indian communities.

Many have criticised Hazare for taking the government hostage over his demand for a specific bill to give more teeth to investigating and punishing graft in high office. But few take issue with his crusade against the scourge of corruption.

The urban middle class, who have prospered since the economy was opened up in the early 1990s, is fed up with the rampant corruption that they encounter, whether it be getting a driving licence or buying a flat. The soaring cost of living has also exacerbated the situation.

Hazare's arrest, followed by the brief arrests of about 2,600 followers in the capital alone on Tuesday, shocked a nation with strong memories of Gandhi's independence battles against colonial rule with fasts and non-violent protests.

INDIA'S NEW GENERATION

Thousands of Hazare supporters held peaceful candle-light vigils through Wednesday night, from the capital Delhi to the IT hub of Hyderabad and the financial capital, Mumbai.

Many of the crowd were young, with rucksacks on their backs, some with their faces painted. Others were older, decked out in outfits worn by the bespectacled Hazare, with his trademark white cap and pyjama-like kurta.

Demonstrations are part of daily life in the towns and cities of India, a country of 1.2 billion people made up of a myriad of castes, religions and classes. But spontaneous and widespread protests are rare and the scale of this week's outpouring of public fury has taken the government by surprise.

Singh, 78, who is widely criticised as out of touch, dismissed the fast by Hazare as "totally misconceived" and undermining the parliamentary democracy.

Hazare, a long-time social activist who is often compared to independence leader Mahatma Gandhi, became the unlikely thorn in the side of the ruling coalition when he went on hunger strike in April. He called off that fast after the government promised to introduce a bill creating an anti-corruption ombudsman.

The so-called Lokpal legislation was presented in early August, but activists slammed the draft version as toothless because the prime minister and judges were exempt from probes.

Over the past year an increasing number of company executives, senior opposition politicians, military officials and ministers have been brought down by graft.

In an unprecedented move, a sitting High Court justice from Kolkata was forced to defend himself against corruption accusations in an impeachment proceeding in Delhi's parliament.

Still, Transparency International rates India in 87th place on the most corruption countries according to a 2010 survey.

"It is only good that there is so much support for such a movement, but to tackle corruption the government will have to go beyond just Lokpal," said Harsh Mariwala, chairman of Federation of Indian Chamber of Commerce and Industry.

(Additional reporting by Arup Roychoudhury and Annie Banerji in New Delhi and Nandita Bose in Mumbai; Editing by Alistair Scrutton and Miral Fahmy)

Source: Swiss Info