The Indian government announced the opening up of the retail sector to foreign direct investment late last month. This led to an intense and sharply polarised debate. Passionate editorials for and against the plan appeared in the Indian press. The Bharatiya Janata party, the major opposition group, said it would oppose the policy in the streets and in parliament.

The critics had their say – and, within a week, their way. As of Wednesday the policy has been put on hold, perhaps indefinitely. It was striking how soon the government capitulated, abandoning a policy that Manmohan Singh, the prime minister, was himself deeply committed to. This move points to some deeper structural features of the Indian political system, which may mean that – at least in the near future – other major reforms proposed by the government will not be implemented.

Mr Singh had seen the opening of the retail sector as a continuation of the economic reforms he supervised as finance minister in the 1990s. He believes that the entry of companies such as Walmart will generate a boost in employment, and better connect farmers to urban markets.

On the other side, critics of FDI draw on deep historical memories, dating to the days of the East India Company, the foreign group that came to trade but stayed on to rule and plunder. They now fear the wiping out of neighbourhood stores and a restriction in consumer choice. The BJP’s opposition is partly explained by the fact that small traders have for them been a reliable source of votes.

Yet the Indian National Congress’s coalition partners also opposed the move. Mamata Banerjee, chief minister of West Bengal whose Trinamool Congress has several representatives in the union cabinet, even refused to take the phone when the prime minister called her to explain why the change in policy was necessary. Faced with opposition within and without, the government capitulated.

A critical factor in this is the complete breakdown of relations between the Congress and the BJP, the two main parties. For more than a decade their leaders have poured abuse and scorn on one another. Even on matters of vital national interest – as with terrorism or relations with Pakistan – the two parties cannot even begin a conversation, let alone arrive at agreement. The partisanship is so poisonous that relations between Republicans and Democrats in the US seem almost courteous by comparison.

In this context, the timing of Mr Singh’s announcement on retail was surprising, to say the least. When it was made, parliament had already been stalled for more than a week. The BJP insisted that it would let normal business resume only when a senior minister charged with corruption resigned. The new retail policy provoked further hostility and even louder protests.

Since 1989 every Indian government has been composed of fractious and unstable coalitions. To secure a parliamentary majority, the Congress, like the BJP before it, had to take in many smaller parties into a coalition. These parties have great powers of blackmail that they use sometimes to secure ministerial posts with greater avenues for corruption, at other times to stall policies that they fear will affect their potential voters.

There has for some time now been a sharp disconnect between dominant western perceptions of Mr Singh and how the prime minister is viewed within his own country. Barack Obama called him a sage among statesmen. World leaders and international newspapers have attributed qualities of leadership to Mr Singh that have been less visible to his fellow citizens.

Within India it was always known that the authority to make senior appointments and to push through public policies lay principally with Sonia Gandhi, the Congress president. Mr Singh was once admired for his personal honesty; now his inability to dismiss corrupt colleagues has gravely dented his image among the middle classes. The prime minister’s failure, even after eight years in office, to seek direct election to parliament means that he cannot even bring his own colleagues into line, still less command the trust of the opposition.

The writer is Philippe Roman chair in history and international relations at the London School of Economics. His most recent book is Makers of Modern India