Controversial proposals to open India's US$450 billion (Dh1.65 trillion) retail market to foreign companies have been put on hold after more than 10 days of intense political wrangling.
The move to liberalise the retail market and open the door to major international retailers, such as Wal-Mart, Carrefour and Tesco, had snowballed into a full-blown political backlash in Asia's third-largest economy.
"Pranab Mukherjee [the national finance minister] has informed me that the government is suspending the [foreign direct investment] issue until a consensus is evolved," said Mamata Banerjee, the chief minister of West Bengal state.
The Indian government had made the announcement on November 24 to allow foreign companies to invest up to 51 per cent in supermarkets, known as multi-branded retailers in India. The government has also proposed to increase the level of foreign direct investment allowed in single-brand retailers from 51 per cent to 100 per cent ownership.
But these plans have been met with strong opposition in India, with many politicians and critics complaining the move would damage the livelihoods of millions of small-shop owners.
A government spokesman quoted in the Indian press stressed the plans had not been shelved, but put on hold.
The Indian government is expected to release an official statement on the matter today, Reuters reported. The U-turn is likely to be embarrassing for the prime minister Manmohan Singh's government, which has been tainted by scandals and is now trying to manage a slowing economy and weak currency.
For many retailers based in the Middle East, India has already proved to be an attractive market. Apparel and Landmark Group have launched expansion plans across the Indian subcontinent in recent years and are both owned by Indians. Landmark operates Spar Hypermarkets in the country through a non-resident Indian entity, while Apparel operates through Major Brands.