The government spooked investors on Tuesday by deferring parliamentary bills intended to make it easier for businesses to buy land and harmonize national and state taxes.
In a setback for Prime Minister Narendra Modi's reform program, the opposition Congress party on Tuesday succeeded in delaying the measures in parliament, prompting a more than 2 percent fall in shares.
The government was compelled to send the proposed legislation to two different parliamentary panels for a review.
The ruling Bharatiya Janata Party (BJP) has the biggest majority in Lok Sabha in 30 years but it is dependent on Congress and other parties to pass bills in Rajya Sabha.
Investor sentiment has already turned sour in recent weeks over the government's tax policy.
Analysts at ANZ described the move to defer the GST bill as unfortunate and ill-timed, but said the delay was not a "derailment".
"We think the GST will see the light of the day," they wrote on Tuesday. "We're more concerned about the fate of the land acquisition bill."
Opposition parties are resisting a bill that seeks to exempt land purchases for certain industrial, housing and infrastructure projects from requiring the consent of 80 percent of landowners, calling it 'anti-farmer'.
Businesses say the exemption is needed to revive private investments and realize Modi's vision of building modern cities.
The GST bill has bipartisan support. Congress, however, was not ready to vote for it without a review by a parliamentary panel, casting doubt on Modi's ability to meet a self-imposed deadline to roll out the proposed tax from next April. The bill requires the approval of more than a half of the 29 states, as well as parliamentary backing.
The government would also need to re-issue an executive decree, first used in December, to implement land reforms.
The decree is so far temporary and needs the approval of both houses of parliament to take permanent effect. It will lapse if parliament does not ratify it in this session.
The Modi administration, which will complete its first year in office this month, has asked both the panels to submit their report in the first week of the next parliament session in July.