NEW DELHI (Reuters) - The government failed on Monday to defuse a row with the opposition over opening up the supermarket sector to foreign chains, a decision that has thrown parliament into chaos and endangered fresh economic reforms.
Opposition lawmakers have paralysed parliament in the world's largest democracy, demanding the government roll back its flagship reform, announced in September, to allow foreign supermarkets like Wal-Mart (WMT.N) to set up shop in India.
Critics say that allowing foreign players into the $450 billion retail sector will destroy the livelihoods of millions of small store owners. The government says the move will increase revenue and help eliminate chronic food wastage by setting up proper cold chain and transport infrastructure.
Parliamentary Affairs Minister Kamal Nath called an all-party meeting on Monday to try to break the deadlock but opposition parties stuck to their demand for a parliamentary vote on the executive order on supermarket reform.
"There can be no compromise on Rule 184," Sushma Swaraj, leader of the main opposition Bharatiya Janata Party (BJP) in parliament, said after the talks, referring to the parliamentary regulation that would allow the vote.
The government has so far refused to accede to the demand, even though the result of a vote would not be binding on it as the reforms can be implemented without parliamentary approval.
If it agreed to and then lost such a vote it would be an embarrassing setback and give its opponents valuable ammunition ahead of state and national elections due by 2014.
Prime Minister Manmohan Singh's shaky coalition lost its majority in parliament in September after its biggest ally, the Trinamool Congress party (TMC), withdrew its support to oppose the reform. The government is not confident that it has the numbers to win the vote and is pushing instead for a debate.
UPROAR IN PARLIAMENT
The dispute over the reform has caused uproar in parliament. Protesting lawmakers clamouring for a government climbdown on the policy have prevented any work from being done in the first three days of the month-long winter session.
So far it has been a replay of the August session, when lawmakers demanding Singh's resignation over alleged irregularities in sweetheart coal deals refused to allow parliament to do any business.
The deadlock threatens to derail the government's efforts to drive forward its stuttering economic reform agenda and shake off the perception of policy paralysis in Asia's third-largest economy.
Bills to allow greater foreign direct investment (FDI) in the insurance and pension sectors are unlikely to come up for a vote while the stand-off over the supermarket reform continues.
"Take back FDI," lawmakers chanted in parliament on Monday as the Speaker tried to get down to business. Many shouted from their seats while others carrying placards gathered around the Speaker's seat. The commotion forced an adjournment for the day.
Opposition parties have seized on revelations that the finance ministry is investigating Wal-Mart, the world's biggest retailer, over claims it violated foreign exchange rules when it invested $100 million in a domestic unit owned by its wholesale joint-venture partner, Bharti Enterprises.
Bharti has also suspended its chief financial officer and other employees in a separate internal investigation into alleged violations of U.S. anti-bribery laws.
Analysts said investors did not expect parliament to pass many, if any, important bills this session. The government, however, is under pressure to revive sluggish economic growth and narrow widening fiscal and trade deficits. (Writing by Ross Colvin; Editing by Alex Richardson)