The decision, announced in Parliament, was a setback for Prime Minister Manmohan Singh and seemed certain to deepen criticism that his administration is increasingly adrift and ineffective. Foreign corporations eager to enter the Indian retail market must now also put aside any expansion plans for the foreseeable future.
“Government will take a decision after a consensus is developed,” Pranab Mukherjee, the Indian finance minister, said in announcing the suspension.
The question is whether the government will try to resurrect the plan in the weeks or months ahead. The Indian economy has been slowing in recent months, partly because of the global economic downturn, but also, many analysts say, because of the inability of the government to pass crucial reforms, including on foreign retail investment.
For months, Mr. Singh has taken a political battering; his administration has been beset by scandals, and opposition leaders have succeeded in stalling the Congress party’s agenda in Parliament. When Mr. Singh’s cabinet approved the foreign retail measure by executive decision on Nov. 24, business groups and many economists hailed the decision as a bold reform that would benefit consumers and farmers while providing a much-needed jolt to the Indian economy.
No parliamentary vote was required for the executive decision to take effect, but loud resistance quickly arose from both political allies and opponents of the Congress party. Mamata Banerjee, a powerful ally, threatened to withdraw her Trinamool Congress Party from the coalition national government.
Opposition parties also pounced, blocking all debate in Parliament for days and decrying the proposal as a direct threat to millions of small businesses across India. Political resistance from Indian traders and shop owners has blocked prior attempts to push through similar measures.
By Wednesday, with other important pieces of legislation stalled, Mr. Mukherjee announced the government’s retreat on foreign retail as part of a deal with opposition leaders to restart Parliament.
Analysts and newspaper editorials have excoriated Congress party leaders, saying they mishandled the issue, including a failure to consult in advance with allies like Ms. Banerjee, and for timing the announcement while Parliament was in session — even though parliamentary approval was not required.
“The political handling is extraordinarily inept,” said Pratap Bhanu Mehta, a political analyst in New Delhi.
Mr. Mehta said the decision by Congress leaders to push aside the foreign retail measure had most likely been linked to an important election early next year in the state of Uttar Pradesh. Rahul Gandhi, regarded as the party’s prime minister-in-waiting, has staked his reputation on making sizable gains in that state, India’s most populous.
Mr. Mehta said Congress party leaders now appear to hope they can pass other important measures in Parliament, including bills on land reform, food security and the creation of an independent anti-corruption agency, known as a Lokpal.
Such legislative achievements would give Mr. Gandhi a record to present to voters in Uttar Pradesh, assuming opposition leaders in Parliament play along. “My own sense is that both the allies and the opposition have smelled blood,” Mr. Mehta said.
Indeed, Mr. Gandhi’s success or failure in the Uttar Pradesh elections could shape the future of the Congress party. His mother, Sonia Gandhi, the party’s president, recently underwent surgery for an undisclosed health matter, leading to questions about when, and whether, her son would take over. But Mr. Gandhi’s appeal will depend partly on his proving that he is a leader capable of winning votes.
The political intrigues of the Congress party were secondary on Wednesday for many business leaders who regarded the retreat on foreign retail investment as a major blow. “Deeply disappointing,” said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry, a leading business group.
The retail measure would have allowed single-brand companies like Ikea to open wholly owned stores in India and multibrand retailers like Wal-Mart to open stores with a minority Indian partner. Ikea had scheduled a news conference in New Delhi to announce its plans for India but quickly canceled the event as political opposition against the foreign retail measure increased.
Mr. Kumar noted that Congress party leaders had not rescinded the executive order on foreign retail but had merely suspended the implementation of the plan and thus left open the possibility that it could be resuscitated. Still, Mr. Kumar was skeptical that any action would be taken before the Uttar Pradesh elections and possibly even far beyond that.
“It’s going to take a long time to come back,” he said. “This waiting for a ‘consensus’ — I can’t see it happening now.”
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