When Asia's largest private life insurance company Nippon Life agreed to buy a 26 per cent stake for US$680 million (Dh2.49 billion) in Reliance Life, the deal should have represented the largest foreign direct investment in India's insurance sector.
But the deal has been stalled by a woefully familiar stumbling block - the country's tough regulatory framework.
The deal would have given the Japanese insurer a firm foothold in India's vastly under-penetrated market, which saw a twelvefold surge in the number of life insurance policies in the past decade.
The Boston Consulting Group forecasts India will be among the world's top three life insurance markets by 2020, with annual premium incomes expected to rise to $350bn.
The country's 1938 Insurance Act stipulates that backers of insurance companies cannot divest their stake until those firms have been in operation for 10 years. Reliance Life, whose chairman is the tycoon Anil Ambani, will not complete a decade in business until January.
But India's control-minded policymakers announced in August they are prepared to relax equity dilution norms for insurance companies. This will allow companies to divest a stake at any time, a move that will eventually pave the way for Nippon and Reliance to become partners. This is the latest in a series of recent reforms introduced by the government in the capital markets, aimed at projecting India as an investment-friendly destination - at a time when there are growing fears of a foreign-capital flight from the country.
Stubbornly high inflation, falling industrial production and choppy stock markets as well as renewed warnings of a double-dip recession across the US and Europe are fuelling concerns of a sharp economic slowdown in India.
The country's GDP expanded at 7.7 per cent in the April to June period, the slowest pace in six quarters.
A survey of 300 companies conducted by the Federation of Indian Chambers of Commerce and Industryreported business confidence in India in the second quarter plunged to a two-year low of 51.6, from 63.7 a year earlier.
The government has frequently faced criticism from corporations for its "policy paralysis" in introducing reforms.
The advisory firm Macquarie estimates about 80 government bills - some of them regarded as critical to prevent the country away from an economic slowdown - are awaiting enactment.
But the government is speeding up reforms, opening new windows for foreign-capital inflows.
In August, it approved foreign investment of up to 26 per cent in the pension sector, giving global companies access to a $2bn pool of assets, which is expected to grow rapidly as more people join the workforce.
Qualified foreign investors are also now able to buy units up to $3bn in infrastructure-focused debt funds approved by the markets regulator. Investments will be subject to a ceiling of $25bn.
The government has also approved foreign investments in equity and debt schemes in the mutual funds market, subject to a ceiling of $10bn.
The government is also expected to liberalise its fast-growing insurance sector, with the cap on foreign investments likely to be raised to 49 per cent from 26 per cent currently.
The consulting company Deloitte described these as "positive moves" that will provide "depth and liquidity in India's capital markets", but it warned that India needed to improve "overall governance in the country to attract large-scale capital flows".
The government is battling a series of high-profile corruption scandals, which have deterred business confidence, analysts say.
The most prominent of them involves the former telecoms minister A Raja, who is accused of selling licences for 2G mobile frequencies at bargain prices to companies he favoured, resulting in an alleged revenue loss to the exchequer of up to $40bn. He denies any wrongdoing.
"The key challenge India faces is to bring transparency in the regulated area of policymaking," says Amit Mitra, the secretary general of the chambers of commerce.
"Policies are often prone to misuse and corruption. They act more as roadblocks than guidelines."