Indians shop for vegetables at a market in Ahmadabad, India. A broad and fiery backlash against India’s new open-door policy for foreign retailers sparked fresh investor fears Monday about political risk and the stability of the Congress Party’s coalition government.(Photo: AP)

NEW DELHI, India

India’s ruling Congress party failed yesterday to persuade both its allies and the opposition to support the country’s new open-door policy for foreign retailers.

The Cabinet decision last week to let foreign retailers own up to 51 per cent of supermarkets and 100 percent of single-brand stores has unleashed a political furor across the country, with parties across the spectrum demanding its immediate revocation.

A meeting of lawmakers from all parties in Parliament to discuss the dispute collapsed yesterday morning, and the national legislature was forced to adjourn for a second day in a row because of the deadlock.

Sitaram Yechury, a legislator from the Communist Party of India (Marxist), called the policy “disastrous” and accused the government of blind-siding its opponents by pushing the new rules without consulting Parliament.

“The demand of the whole opposition is that the decision should be revoked,” Murli Manohar Joshi, a leader of the opposition Bharatiya Janata Party, told the Press Trust of India.

The new regulations don’t require parliamentary approval, but to set up shop, foreign retailers such as Wal-Mart and Tesco must get approval from the government of the state where stores will be located.

Five state leaders have already made it clear they’re unwilling to let in foreign companies. Two of the Congress’ main coalition allies also oppose the policy, though they said they would not quit the government over the dispute.

As the argument raged, Ikea chief executive Mikael Ohlsson visited India to evaluate the new rules. He could make an announcement regarding Ikea’s investment plans as early as Wednesday, Ikea spokeswoman Josefin Thorell said.

Ikea has long wanted to come to India, but declined to do so under the old investment rules, which required it to work with an Indian partner.

Addressing a meeting of the Congress party’s youth wing, Prime Minister Manmohan Singh said the regulations would improve transportation and storage of food supplies and lead to the creation of new jobs.

“I urge you to spread awareness about this across the country,” he said yesterday.

Communist Party-controlled trade unions have threatened to strike Thursday and at least one lawmaker from the rightwing Bharatiya Janata party has even threatened to burn down foreign big-box retailers.

The opponents of the policy, which would allow big foreign retailers to set up supermarkets only in major cities, say it threaten millions of India’s small traders.

India’s Commerce Minister Anand Sharma has said that the change will be a boon for both consumers and farmers rather than a threat to small store owners. He said the new rules would edge out unscrupulous middlemen who eat into the profits of the small farmers.

Sharma said it would also bring down the cost of food for everyone, eliminate spoilage that claims up to 40 per cent of all fresh produce, and create millions of jobs.

In a move that was widely perceived as capitulation to its critics, the Ministry of Commerce on Monday said that to take advantage of the new investment rules, foreign companies must source at least 30 percent of manufactured and processed products from “Indian micro and small industry.”

Last week, it had said such sourcing must come from “micro and small enterprises, which can be done from anywhere in the world and is not India specific.”

“There is a change,” Ministry of Commerce spokesman Dheeraj Singh said yesterday. The new rule is “mandatory,” he said, declining to discuss the reason for the shift.

The change could violate India’s World Trade Organization obligations, which prohibit mandatory local sourcing requirements to the extent that they disrupt international trade, said Nishith Desai, founder of Nishith Desai Associates, an international tax and corporate law firm based in Mumbai.