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Prospects for Indian economic reform dimmed on Thursday as the Congress party-led coalition government bowed to pressure from a junior partner and cancelled recently announced plans for a number of privatisations.

“Dr Manmohan Singh has decided to keep all disinvestment decisions and proposals on hold, pending further review,” the Indian prime minister’s office said in a statement on Thursday.

The U-turn by the United Progressive Alliance coalition comes days after the cabinet decided to sell 10 per cent stakes in two state-run enterprises – Neyveli Lignite, the coal mining and energy group, and National Aluminium Company.

The National Common Minimum Programme, the policy blueprint for the UPA that was agreed in May 2004, ruled out the sale of majority stakes in navaratnas – profitable national champions. However, it appeared to leave the government scope to divest minority stakes.

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Delhi's u-turn on privatisation attacked by capitalists

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Indian business leaders have lamented the government’s loss of nerve over plans to sell small stakes in publicly owned companies, seen as the latest sign of backsliding in a reform programme that has lost momentum and credibility in recent months.

The Confederation of Indian Industry expressed “deep concern” at a statement from the government on Thursday announcing that Manmohan Singh, India’s prime minister, had decided to keep all disinvestment decisions and proposals “on hold” pending further review.

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