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India halts foreign retail plan

India's government has suspended its plans to throw open its huge retail sector to foreign companies such as Wal-Mart, in a decision seen as a major capitulation to political opponents.

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

The government said foreign retailers would bring better prices for farmers and lower prices for consumers by cutting out middlemen and upgrading the country's infrastructure.

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

The government held a meeting today with all the parties in parliament and told them it was putting the decision to allow foreign direct investment on hold, in exchange for them allowing the legislature to function.

"FDI (foreign direct investment) is being suspended," energy minister Farooq Abdullah said without clarifying how long the suspension of the decision would last.

Finance minister Pranab Mukherjee later told parliament that foreign retail was "suspended until a consensus is developed through consultations with various stakeholders". It was not clear how long that process would take or whether the policy would be implemented or cancelled after it was over.

Opponents claimed victory. "It is a virtual rollback," said Gurudas Dasgupta, a Communist party MP.

"This is a signal that this government can't do anything with force," said Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices in the Ministry of Agriculture. "It's the nation that loses."

But Mr Abdullah denied the government had surrendered. "There is no roll back," he said.

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