Just days after approving long-awaited proposals to raise the limits on foreign investment, a government ally said he had been told the policy was suspended.
The decision to allow chains such as Walmart and Tesco into India has sparked fierce opposition.
Critics fear the move would destroy millions of jobs and businesses.
Mamata Banerjee, whose Trinamool Congress contributes 19 votes to the ruling Congress party-led coalition, said that Finance Minister Pranab Mukherjee had told her that the policy would be put on hold.
Giants like Wal-Mart have long eyed the lucrative Indian market
Supporters of the move say it will increase competition and quality while reducing prices, which have been hit by close to double-digit inflation.
Opponents say the multi-nationals will squeeze out India’s smaller and poorer traders and drive down prices paid to India’s farmers.
Trade Minister Anand Sharma said before the decision that there was “a broad-based consensus” in the cabinet in favour of the proposal