MUMBAI, India — Stock prices of Indian retailers plunged Monday after a key coalition ally and opposition politicians said the government had put on hold its decision to throw open the country’s huge retail sector to foreign investors, in a potentially damaging setback for India’s beleaguered ruling party.

The government has not officially announced a change in its policy on foreign direct investment, but a reversal would be an embarrassment for the ruling Congress party, which has been scrambling to reassert its leadership and kick-start investment in the deteriorating economy.

The government’s failure to clarify its position wreaked havoc with shares of Indian retailers, which earlier had risen on hopes they would enter joint ventures with foreign retailers. Jittery investors drove shares in Pantaloon Retail down 12.9 percent and Treat closed down 3.3 percent.

The furor over whether to allow chains such as Walmart to open supermarkets in major cities has deadlocked Parliament, with many politicians slamming the decision as a job killer for India’s small retail shops. Proponents say it would bring needed investment into India’s infrastructure that would result in higher incomes for farmers through less waste of their produce and cutting out the middleman. Greater competition and efficiency would benefit consumers by keeping retail prices down.

An about-face on such an important decision would raise serious questions about the ability of India’s ruling party to effectively govern.

 

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