* Vote shows political will on reforms: analyst
* Government won vote with help of regional parties
* Retailers will now be able to operate in $450 bln consumer sector (Adds quotes, details)
By Nigam Prusty and Satarupa Bhattacharjya
NEW DELHI, Dec 7 (Reuters) - The Indian government won a second parliament vote on Friday on allowing foreign supermarkets into the country, paving the way for Prime Minister Manmohan Singh to press ahead with more reforms, including freeing up a cash-strapped insurance sector.
While the upper house vote was symbolic, the government's victory was a boost for its push to implement a controversial economic reform agenda seen as crucial to reviving growth and reducing a bloated fiscal deficit.
The government had already won a vote on retail reform in the lower house two days earlier. The policy will allow global retailers such as Wal-Mart Stores Inc to set up shop in the country's $450 billion retail sector, and is aimed at drawing more overseas investment and taming inflation.
Although both votes were non-binding, defeat would have piled pressure on Singh to roll back the measure.
"Overall, it is a positive development. More than anything else, I think it reaffirms the political will to start reforms," said Saugata Bhattacharya, an economist with Axis Bank in Mumbai.
Once again, Singh's fragile coalition government relied on Friday on the outside support of two parties based in the state of Uttar Pradesh, underscoring the extent to which it is at the mercy of powerful regional groups to push through legislation.
SHOUTING AND WALKOUTS
In the shrinking window before a general election due in just over a year, Singh's minority government wants to push reforms such as allowing more foreign investment in its insurance and pension sectors, and simplifying tax laws.
But these are likely to run into a wall of opposition from rival parties that say such market-friendly reforms will come at the expense of domestic businesses.
Singh's Congress party has 10 days left before the end of the current parliament session to try to pass legislation.
"Our reforms are on track," Parliamentary Affairs Minister Kamal Nath said after the vote, adding the government would bring financial sector bills to parliament next week.
However, the session could once again see the kind of disruption and walkouts that have repeatedly stalled business over the last couple of years. Lawmakers have used them to air grievances on anything from corruption to demands for the creation of a new state in the south.
Moreover, the main opposition Bharatiya Janata Party (BJP), having seen its motion to block retail reform defeated, is likely to obstruct moves to allow foreign direct investment (FDI) in the insurance sector. The BJP wants a 26 percent cap set on investment, against the government's proposed 49 percent.
"We will oppose any move by the government against the recommendations of the standing committee on finance which has said it should be 26 percent," Prakash Javdekar, a BJP leader and spokesman for the party, told Reuters.
To carry on with reforms, the Congress party will have to rely on the support of the Bahujan Samaj Party (BSP) and the Samajwadi Party (SP), both based in the populous northern state of Uttar Pradesh, to defeat the BJP.
In Friday's vote BSP lawmakers voted with the government and SP deputies abstained, handing it a 123-109 victory after a debates punctuated by laughter and the occasional flare-up.
To be sure of its numbers, Congress brought one MP to parliament in a wheelchair and another on a hospital bed. Leading cricket batsman Sachin Tendulkar, a non-party MP, was in Kolkata playing in a test match against England.
"The regional parties supported the Congress party on retail reform and my feeling is that they will continue to do so because they don't want to give BJP any political advantage," said political analyst Amulya Ganguli.
The government also aims to pass a bill that paves the way for the Reserve Bank of India to issue new banking licences, as well as increase its regulatory powers over Indian banks.
India's economy is set to grow at its slowest pace in a decade in this fiscal year, and the government's overspending on subsidies on fuel and food has prompted global ratings agencies to warn of a downgrade. (Writing by Matthias Williams; additional reporting by Arup Roychoudhury; Editing by Ron Popeski)