India's government dropped a plan on to reconvene parliament to secure approval for a goods and services tax because it lacks political support, in a new setback to Prime Minister Narendra Modi's faltering plans to revamp the economy.

The retreat came as Modi's administration has been assuring an increasingly sceptical business community that Asia's third-largest economy can withstand global market turbulence and China's slowdown.

Finance Minister Arun Jaitley said the cabinet decided to end the monsoon session of parliament that had been kept alive since last month to allow for consensus on the tax known as GST.

"There was a meeting of the cabinet committee on political affairs. It was decided to recommend the president to prorogue the monsoon session. We will keep trying, we are in touch with all political parties," Jaitley said.

The next opportunity will be in November, making it harder to meet an April 2016 deadline to implement a reform that foreign and domestic companies consider one of the best ways to spur growth.

"In truth, not only does the finance ministry's hope of introducing the GST by April 2016 look unrealistic, implementation by April 2017 would be a stretch too," Shilan Shah of Capital Economics said in a research note.

The decision follows a series of setbacks. With an important state election looming, Modi last month dropped a bill to make it easier for industry to acquire land after the opposition denounced it as anti-farmer.

Jaitley called for cooperation from other parties to get the tax passed by the April deadline.

"It is time for political parties to display some element of statesmanship, particularly when India is trying to emerge as an important economic force," he said.

The government needs opposition support as it lacks a majority in the upper house.

'MASSIVE'

The GST would replace an array of state and federal levies and transform India into a more uniform market. Economists estimate that could add up to 2 percentage points to gross domestic product.

Earlier, at a gathering organised by The Economist newspaper, Jaitley warned business leaders that delays were possible to a tax that many executives said topped their list of measures they wanted the government to implement.

"It's massive. GST has to happen," Juvencio Maeztu, India CEO for Swedish retailer IKEA, which buys from India but has yet to open any stores. "We cannot lose more time on this."

Fifteen months into Modi's term, officials are pushing to kickstart a sluggish economy, despite rosy official growth figures.

The government has argued India's relatively closed economy offers protection against the turmoil sweeping emerging markets, but India has not been immune. Most of the gains in Indian stocks since Modi took office in May 2014 have been wiped out.

Jaitley said it was vital to stay on the path of reform and build toward higher growth, which the International Monetary Fund forecasts at 7.5 percent this year.