The main opposition Bharatiya Janata Party BJP.L and smaller parties from both the political left and right called the strike to protest against a 14 percent increase in heavily subsidised diesel prices, and a government decision that opens the door to foreign supermarket chains investing in India.

The measures, part of a package of economic reforms aimed at boosting a sharply slowing economy, have triggered a political firestorm. Prime Minister Manmohan Singh's biggest ally, the Trinamool Congress party, said it would pull out of the coalition on Friday unless the reforms were reversed, raising the risk of an early election.

The Confederation of Indian Industry CII.L urged Singh not to yield to the pressure, saying the reforms, long demanded by Indian business leaders, were crucial for economic growth.

"Good economics seldom makes for good politics," it said.

The CII said the one-day strike had cost the economy $2.3 billion in lost production and trade.

It did not say how it had arrived at the figure, but hundreds of thousands of owners of mom-and-pop "kirana" stores, who fear the retail reform will drive them out of business, were reported to have shut for the day in protest. Bigger companies gave staff the day off or allowed them to work from home.

A usually bustling Bangalore, India's IT and outsourcing hub, wore a deserted look as offices and shops closed down and public transport came to a halt. But in Mumbai, the country's financial capital, banks and offices were open as usual.

Across the country, morning commuters were left stranded at train stations and bus stops as protesters squatted on railway tracks and laid siege to bus depots. Supporters of the BJP and other opposition parties also burned effigies of Singh and blocked roads with burning tyres.

"If we don't protest now, the central government will eliminate the poor and middle-class families," said Santi Barik as she protested in Bhubaneswar, capital of the eastern state of Odisha.

Government offices, businesses, schools and banks in Bhubaneswar were shut, and similar shutdowns were reported in other cities, including Hyderabad, the IT hub that is home to offices of Microsoft Corp (MSFT.O) and Google Inc (GOOG.O).

BULLOCK CARTS AND BUFFALOES

In Bangalore, most of the 3,500 staff employed by Intel Corp (INTC.O) and 10,000 staff at Cisco Systems Inc (CSCO.O) were asked to work from home, company spokesmen said. Infosys Ltd (INFY.NS) and Wipro Ltd (WIPR.NS) gave workers the day off.

On the outskirts of Kolkata, capital of West Bengal, protesters smashed car windows and damaged buses as panic-stricken commuters fled their vehicles, police said. In Bihar state, protesters marched through the streets of the capital, Patna, sitting on buffaloes.

"We will be left with nothing but bullock carts and buffaloes to move around in towns due to frequent hikes in fuel," said protester Punam Devi.

The Congress party-ruled coalition, which has a record of buckling under pressure, partially rolled backed a petrol price increase this year after facing a similar strike.

Some Congress officials have hinted that the 5 rupee per litre diesel price increase could be cut, and a new limit on subsidised cooking gas cylinders may also be raised.

But the Congress party has held firm against calls for the retail reform to be scrapped, despite the threat by Trinamool Congress to withdraw its ministers on Friday - which would leave Singh with a minority government.

Singh is counting on support from two regional parties to prop up his shaky coalition in parliament. But the leader of one of the parties, Mulayam Singh, was among protesters marching in New Delhi on Thursday, underscoring the difficulties Singh will face in pushing forward with his economic reforms.

Finance Minister P. Chidambaram played down suggestions of an early election.

"We have enough friends today. We had enough friends yesterday. So I don't see any reason why you should doubt our stability," he said.

The BJP is seeking to exploit anger against the diesel increase and retail reforms ahead of a series of state elections later this year and national elections due by 2014.

Mom-and-pop grocery shop owners are an important constituency for the BJP. Tiny family-owned kiranas are ubiquitous, dotting densely packed neighbourhoods across India. Some of them are walk-in stores but many owners operate out of garages or hole-in-the-wall stalls. (Additional reporting by Sujoy Dhar in KOLKATA, Mohammed Shafeeq in HYDERABAD, Biswajyoti Das in ASSAM, Henry Foy in MUMBAI and Annie Banerji, Arup Roychoudhury and Ankush Arora in NEW DELHI and Harichandan Arakali in BANGALORE; Writing by Ross Colvin; Editing by Ian Geoghegan and Robert Birsel)

• A Permanent Economic Emergency