Putting the reforms on hold, which some claim would have destroyed the livelihood of millions of small shop owners, is an acute embarrassment to Prime Minister Manmohan Singh.

The initial decision last month to allow foreign companies to own 51 percent of supermarkets in major cities and 100 percent of single-brand stores was hailed by the business community as a long overdue reform.

The government, some economists and large retailers had argued that opening up the sector would bring better prices for farmers and lower prices for consumers but cutting out the middleman and upgrading the country's infrastructure.

Deep divisions on India's future

But opposition parties and even some members of the governing coalition protested against the deal, saying it would crush local 'Mom & Pop' stores that are the heart of Indian retailing. Opposition lawmakers disrupted parliament for days in protest.

For now, at least, the owners of India's myriad corner shops can breathe a sigh of relief.

Finance Minister Pranab Mukherjee told parliament on Wednesday that foreign retail was "suspended until a consensus is developed through consultations with various stakeholders."

The postponement affects plans by big foreign retail chains, such as Walmart of the United States, Tesco of Britain, Metro of Germany and Carrefour of France to expand in India.

Decision sows confusion

Opposition parliamentarian, Sushma Swaraj, welcomed the government's move and said it did not undermine the government.

"To bow before the peoples' feelings does not weaken the government, but strengthen democracy," she said.

Others were not so impressed.

"It is a virtual rollback," said Gurudas Dasgupta, a Communist party lawmaker.

The president of the Federation of Indian Chambers of Commerce and Industry, Harsh Mariwala, branded the decision "deeply disappointing."

In a newspaper editorial, the Indian Express on Wednesday wrote that "the perception that the (coalition) can be easily cowed has been strengthened."

The paper added starkly that apparently the government did not have "the political artfullness to sell what is essentially a decision that potentially improves the material well-being of many, many Indians."

Food waste a major problem

Small shopkeepers across India reacted with angry protests when the plans were first unveiled late last month, pressuring lawmakers to postpone the policy shift until a consensus emerged. Opposition parties sharply criticized the reform and the uproar over the issue led to repeated adjournments of parliament since the announcement on November 24.

Indian legislators initially decided to open up the country's retail sector as a way to improve efficiency and reduce India's significant food spoilage problem.

The Indian Center for Plastics in the Environment (ICPE) said in a report that 40 percent of the country's fruit and vegetable harvest goes to waste "due to poor storage, transportation, lack of infrastructure and the inadequacy of marketing procedures."

Author: Gregg Benzow (dpa, Reuters)
Editor: Sarah Berning