When you have a former state official threatening to burn Wal-Mart (WMT) to the ground, you have a problem.

That's the kind of controversy India found itself in last month after giving Wal-Mart and other foreign companies the green light to own up to a 51% stake in supermarkets. Smaller shopkeepers worried that Wal-Mart, with its rock-bottom prices and competitive prowess, would put them out of business.

"If Wal-Mart tries to open its mall anywhere, I will burn it myself," said Uma Bharti, a former state chief minister who opposes the plan, according to Reuters.

The issue turned into a crisis, leading India to suspend the decision this month. The reversal is a blow to Prime Minister Manmohan Singh's work to bring in more foreign investment, Bloomberg reports. Singh said the move would create millions of jobs and curb inflation, but many weren't buying it.

Local merchants closed their shops on Dec. 1 in a one-day strike against allowing global retailers.

Wal-Mart wasn't saying much publicly about the decision. Neither was France's Carrefour (CRRFY), which was mentioned as another global retailer that could benefit.

Others said the move shows that it's becoming harder for outside companies to enter into India, one of the most promising emerging consumer markets in the world. Starbucks (SBUX), Dunkin Brands (DNKN) and other companies are forming alliances in order to open outlets in the populous country.

"It was easier to operate in the country a year ago than it is today," the CEO of General Electric's (GE) Indian unit told Bloomberg. "It is frustrating to look at unresolved issues and know that they’re resolvable if you can get some leadership and orientation around them."

Wal-Mart already has a toehold in India. The government already allows foreign companies to own wholesale stores, and Wal-Mart has set up 14 of those in a joint venture with an Indian firm.