The government refused to allow a parliamentary vote on Wednesday on rolling back controversial retail reforms, and the current legislative session now faces more disruption, making it unlikely that any significant laws will be passed this year.
The furore over inviting global supermarket chains such as Wal-Mart Stores Inc to invest in India's $450 billion market risks spilling on to the streets as opposition parties prepare to organise protests.
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Finance Minister Pranab Mukherjee rejected opposition calls for a parliamentary motion on the reform after talks with members of the ruling Congress party.
"(He) rejected the very idea of an adjournment motion, but said the government is open to discuss in parliament FDI in retail," a senior Congress party lawmaker said.
An "adjournment motion" is a parliamentary mechanism to censure the government. Such a move on the retail reforms would likely pass as they are opposed even by allies within the Congress party-led coalition.
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Critics from all sides are demanding the government ditch plans to allow 51 percent foreign direct investment in retail, saying the policy will cost millions of jobs.
Free market champions when in power, the Bharatiya Janata Party now fiercely opposes FDI in retail, and plans protests in Delhi on Friday in support of small traders. Party activists have protested in several cities this week.
Uproar from lawmakers over the retail move led to both houses being suspended until Thursday -- as they have been every day since the winter parliamentary session opened on Nov. 22.
The unruly parliament has only worked normally in one session since 2010, with opposition parties repeatedly halting proceedings to protest corruption or demand policy changes.
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Almost no big reform laws have passed in more than a year.
Indian media have focused, too, on parliament's low workload, with one cable news network suggesting a 'no-work, no-pay' system for lawmakers.
"A defeat on the motion would not itself bring down the government, but the embarrassment would likely cause party leaders to slap new requirements or conditions on the FDI policy," said Seema Desai, a political risk analyst at Eurasia Group.
Senior Congress party officials, including party chief Sonia Gandhi, were due to meet later on Wednesday.
Hobbled by corruption scandals, stubbornly high inflation and a rapidly cooling economy Prime Minister Manmohan Singh had hoped the supermarket reform would get his agenda of economic reforms back on track.
Instead it risks pushing into the long grass even a widely touted anti-corruption bill that has broad political support.
Other bills such as extending food subsidies and allowing foreign investment in pension funds may not now get around to being debated this year.
Activist Anna Hazare, who has millions of mainly urban middle-class followers, has warned he will revive street protests that rocked the government in the summer if a bill to create a powerful corruption watchdog does not become law this year.