Foreign supermarkets will not have an easy ride if India does lift the restrictions on their entry.
It had faced stiff opposition on its decision to allow foreign supermarkets to set up shop in the country.
This time round a proposed fudge would let individual states veto foreign supermarkets, though that may not prove legal.
An entrance of big foreign supermarkets, she said, would hurt small-time Indian retailers.
WSJ: India Government Roiled as Ally Withdraws Over Retail Plan
The past year has seen confrontations over rail fares, petrol prices, a water deal with Bangladesh and foreign supermarkets in India.
In September the government announced a batch of reforms designed to shore up confidence, for example by relaxing rules for foreign supermarkets.
Many Indian states, for instance, have opposed allowing foreign supermarkets to set up and have opted not to apply these regulations in their regions.
In late 2011 Ms Banerjee failed to support both the central government's plans to let foreign supermarkets into India and its latest attempt to pass an anti-corruption bill.
Last year, under pressure from Ms. Banerjee, the government suspended an earlier decision to allow foreign supermarkets such as Wal-Mart Stores Inc. and Carrefour SA to open in India.
WSJ: India Government Roiled as Ally Withdraws Over Retail Plan
India's ruling Congress party said it won't reverse a decision to let foreign supermarkets invest in the country, but it might be willing to partially roll back recent fuel-price increases.
Added to that, the government last week gave India's 29 states the power to opt out of the retail measure, and a number of India's states have already said they won't allow foreign supermarkets to open there.
WSJ: India Government Roiled as Ally Withdraws Over Retail Plan
In India it has a procurement operation and big plans, although foreign investors cannot own supermarkets.
That has brought a rapid expansion of big supermarkets and foreign retailers.
Relaxing the laws controlling large stores has already increased competition by encouraging rapid growth in the number of big supermarkets and foreign retailers.
India lifted the prohibition partially last September, allowing foreign retailers to own up to 51% stakes in domestic supermarkets.
In last September, India lifted the ban partially, allowing foreign retailers to own up to 51% stakes in local supermarkets.
The cabinet of the Congress party-led coalition agreed last week to allow foreign multibrand retailers to own up to 51% of joint ventures and open supermarkets in India.
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