The sale of stakes in Hindustan Petroleum and Bharat Petroleum has been postponed for three months.

Despite fears of war between India and Pakistan over Kashmir, share prices have stayed afloat in India as investors bought shares in state firms hoping privatisation would bring higher efficiency and profitability.

But the privatisation of the profitable oil firms faced strong opposition both from within the ruling party and from its coalition partners.

Analysts say the delay raises questions about the government's commitment to economic reform, ahead of state elections in 2003 and national elections in 2004.

By the end of the first hour of trade, the benchmark Bombay share index was nearly 2% lower at 3,083.15 points.

Under pressure

The country pushed ahead with economic reforms in 1991 but resistance from political parties, trade unions, and bureaucracy have since hindered the process.

Parliament has yet to approve many key reforms including cutting government stakes in state-run banks, labour reforms and moves to control the country's rising fiscal deficit.

The government had hoped to raise 120bn rupees ($2.47bn) from privatisation in the year to March 2003.

But disinvestment Minister Arun Shourie has said the government is unlikely to meet this target.

India's fiscal deficit is also under pressure from the rising cost of relief work as the country faces its worst drought in 15 years.