Mayawati, the president of the Bahujan Samaj Party, said on Thursday she would back the government on the FDI-in-retail vote in the Rajya Sabha, virtually ensuring that an opposition motion against the reform will be defeated.
Prime Minister Manmohan Singh's minority coalition government won a non-binding vote on the same issue in the Lok Sabha on Wednesday thanks to abstentions from the BSP and the Samajwadi Party.
It had looked set to lose in the Rajya Sabha vote scheduled for Friday because it has fewer parliamentary seats there.
However, the capricious Mayawati's unexpected pledge of support from her party's 15 Rajya Sabha MPs means the government may be able to count on as many as 117 votes, which - if the Samajwadi Party abstained - would be just enough to win in the 245-seat chamber.
Mayawati - whose power base is in the country's most-populous state Uttar Pradesh - said her decision was partly based on the government's willingness to let individual states decide whether they allowed in foreign retailers.
A second win on the retail policy will be a much-needed boost for Singh as he tries to drive a second wave of reforms through a fractious parliament. The debate over retail reform has proved a costly distraction for the minority government, eating up two weeks of parliament's month-long winter session.
The government's win on FDI would clear the way for voting on bills aimed at attracting foreign investment to the ailing pension and insurance industries, two measures seen by financial markets as important steps in further liberalising an economy in the midst of a slowdown.
The stock market recovered early losses after Mayawati's announcement, rising for the third day. Gains were led by a rebound in rate sensitive stocks on hopes of momentum on the pension and insurance bills.
(Writing by John Chalmers; Editing by Nick Macfie)