The government of Rajasthan has barred foreign direct investment in the multi-brand retail sector, newspapers said, becoming the second state to block foreign supermarkets from setting up shop.
Last month, the newly-elected Aam Aadmi (Common Man) Party government in the capital, New Delhi barred foreign supermarkets, opposing the efforts of Prime Minister Manmohan Singh to attract overseas investment and revive the economy.
Singh had thrown open the country's $500-billion retail industry to foreign investors late in 2012, allowing companies such as Wal-Mart Stores (WMT.N) and TESCO Plc (TSCO.L) to own majority stakes in Indian chains for the first time.
So far, fewer than half of India's 28 states have agreed to roll out the policy.
The decision by Rajasthan, ruled by the main opposition Bharatiya Janata Party (BJP), comes just months ahead of national elections that are due to be completed by May 2014.