India on Wednesday suspended its decision to open the country's giant retail sector to foreign supermarkets, Commerce and Industry Minister Anand Sharma said.
"The decision to allow foreign direct investment in retail is suspended until consensus is reached with all stakeholders," Sharma told reporters after an all-party meeting aimed at breaking a parliamentary logjam over the retail reform issue.
The rollback is a damaging blow to Prime Minister Manmohan Singh's administration, which announced just two weeks ago that it had approved the long-awaited changes in investment legislation.
The entry of international chains such as Wal-Mart, Carrefour and Tesco into India could herald a consumer revolution as shoppers move from small, neighbourhood stores to large, "big box" supermarkets.
But anger over the reforms has united small shopkeepers, trade unions, influential state leaders and lawmakers both from opposition parties and from within the ruling coalition.
Noisy protests by lawmakers have paralysed parliament every day since the reform was announced.
Observers said the government's capitulation was likely to fuel criticism of indecision and policy drift within Singh's administration.
Under the reform plans global firms would be able to hold a 51 percent stake in supermarket chains, changes widely seen as a threat to many of India's local stores.
The government and many industry leaders had argued that a modern retail system would mean more choice and lower prices from consumers, create new jobs and enable farmers to reduce wastage.
The sector is worth an estimated $470 billion in annual sales, with high growth potential as India's 1.2 billion people move towards a more Western-style consumer economy.