The government said it was prepared to launch an inquiry into lobbying by Wal-Mart Stores Inc.
Opponents of reforms that allow foreign supermarkets to trade in Asia's third largest economy renewed pressure on the government after Wal-Mart disclosed that it had paid $25 million over four years to lobby U.S. lawmakers to help gain access to foreign markets, including India.
Wal-Mart has found itself entangled in a fight between Prime Minister Manmohan Singh's fragile minority government and political opponents determined to thwart supermarket reform which, they say, will destroy the livelihoods of millions of mom-and-pop store owners.
The dispute has thwarted the government's efforts to drive more economic reforms through parliament before the winter session ends on December 20. Opposition parties have sought to portray Singh's government as the pawn of powerful foreign companies ahead of national elections due in 2014.
"This money was spent in India and this question arises as to on what did they spent this money? To whom all have they given this money?" said opposition lawmaker Yashwant Sinha, chairman of parliament's finance committee and a former finance minister.
Parliamentary Affairs Minister Kamal Nath said he would announce steps towards an inquiry in parliament later on Tuesday. But his office denied he had given a date for any action, raising questions about whether the government would indeed launch an investigation.
A senior member of the ruling Congress party even ruled out a parliamentary or judicial inquiry, saying there was nothing to investigate.
Wal-Mart said allegations it had lobbied in India were "entirely false".
"The expenditures are a compilation of expenses associated with staff, association dues, consultants, and contributions spent in the United States," said a spokesman for the company's local Bharti Walmart joint venture.
"On the U.S. side, I don't have any reason to believe that we have a violation of U.S. law here. With regard to the Indian side, I'll refer you to them," U.S. State Department spokeswoman Victoria Nuland told reporters in Washington on Monday.
Bentonville, Arkansas-based Wal-Mart has been the most active among foreign supermarket operators keen to push their way into India's $450 billion retail market. Opponents fear the entry of Wal-Mart and others will put millions of small shopkeepers out of business.
The company is also being investigated by India's financial crimes watchdog over whether it entered India's supermarket sector before the country allowed foreign retailers in.