UPDATE 4-India drops parliament plan for vital tax measure in new reform delay

* Drops plan to call parliament on goods tax

* Minister says delay in tax is possible (Recasts, adds economist comment)

By Frank Jack Daniel and Tommy Wilkes

NEW DELHI, Sept 9 (Reuters) - India's government dropped aplan on Wednesday to reconvene parliament to secure approval fora goods and services tax because it lacks political support, ina new setback to Prime Minister Narendra Modi's faltering plansto revamp the economy.

The retreat came as Modi's administration has been assuringan increasingly sceptical business community that Asia'sthird-largest economy can withstand global market turbulence andChina's slowdown.

Finance Minister Arun Jaitley said the cabinet decided toend the monsoon session of parliament that had been kept alivesince last month to allow for consensus on the tax known as GST.

"There was a meeting of the cabinet committee on politicalaffairs. It was decided to recommend the president to proroguethe monsoon session. We will keep trying, we are in touch withall political parties," Jaitley said.

The next opportunity will be in November, making it harderto meet an April 2016 deadline to implement a reform thatforeign and domestic companies consider one of the best ways tospur growth.

"In truth, not only does the finance ministry's hope ofintroducing the GST by April 2016 look unrealistic,implementation by April 2017 would be a stretch too," ShilanShah of Capital Economics said in a research note.

The decision follows a series of setbacks. With an importantstate election looming, Modi last month dropped a bill to makeit easier for industry to acquire land after the oppositiondenounced it as anti-farmer.

Jaitley called for cooperation from other parties to get thetax passed by the April deadline.

"It is time for political parties to display some element ofstatesmanship, particularly when India is trying to emerge as animportant economic force," he said.

The government needs opposition support as it lacks amajority in the upper house.

'MASSIVE'

The GST would replace an array of state and federal leviesand transform India into a more uniform market. Economistsestimate that could add up to 2 percentage points to grossdomestic product.

Earlier, at a gathering organised by The Economistnewspaper, Jaitley warned business leaders that delays werepossible to a tax that many executives said topped their list ofmeasures they wanted the government to implement.

"It's massive. GST has to happen," Juvencio Maeztu, IndiaCEO for Swedish retailer IKEA, which buys from India but has yetto open any stores. "We cannot lose more time on this."

Fifteen months into Modi's term, officials are pushing tokickstart a sluggish economy, despite rosy official growthfigures.

The government has argued India's relatively closed economyoffers protection against the turmoil sweeping emerging markets,but India has not been immune. Most of the gains in Indianstocks since Modi took office in May 2014 have been wiped out.

Jaitley said it was vital to stay on the path of reform andbuild toward higher growth, which the International MonetaryFund forecasts at 7.5 percent this year.

(Additional reporting by Rajesh Kumar Singh: Writing by DouglasBusvine and Sanjeev Miglani; Editing by Simon Cameron-Moore,Robert Birsel)