Following Delhi, Rajasthan has scrapped the decision to allow FDI in multi-brand retailing, evoking sharp criticism from the Commerce Minister, who said "states cannot retract unilaterally on such commitments."
A letter reversing the decision was sent by Rajasthan Chief Minister Vasundhara Raje to Commerce and Industry Minister Anand Sharma.
A top Rajasthan state official confirmed that the letter withdrawing FDI permission had been written to Sharma.
"If a duly elected state government formally notifies its willingness to implement the policy within its jurisdiction, it cannot retract unilaterally on such commitments," Sharma told PTI.
The ministry, according to a senior official, will soon be seeking the opinion of the Law Ministry on states withdrawing their consent to implement the foreign direct investment (FDI) policy in the multi-brand retail sector.
"It is a clearly settled matter that FDI policy falls clearly within the remit of the central government...to say that a new government has the authority to withdraw its support to the FDI policy is bad in law.
"FDI policy in the sector has been discussed, debated and voted upon in both houses
The intention of the policy, he said, was not to create uncertainty, instability and unpredictability.
However, he added that under the Shops and Establishments Act, state governments "are well within their rights to define their regulatory framework for all retailers - foreign or domestic."
Rajasthan has become the second state, after Delhi, to withdraw approval for FDI in multi-brand retail following a change of government after the assembly elections held in November-December. The Congress lost to the Bharatiya Janata Party in Rajasthan and to the Aam Aadmi Party in Delhi.
Twelve states, mostly Congress-led, had agreed to allow global retailers to open supermarket chains. The other states include Maharashtra, Karnataka and Andhra Pradesh.
Former Rajasthan state Chief Minister Ashok Gehlot had agreed to implement the policy in the state.
The central government permitted 51 per cent FDI in multi-brand retail trading in September 2012 and left its implementation to the states.
So far, only UK-based Tesco's proposal to invest in the sector has been cleared by the central government.
Earlier this month, the new AAP government in Delhi rescinded the previous government's decision to allow FDI in multi-brand retailing.