The Indian capital was paralysed for a third day yesterday as thousands of shopkeepers stepped up their protests against a government campaign to close down businesses in residential areas.

Almost every shop in the city of 14 million people has been shut since Monday to protest about the planned closure of 44,000 commercial premises that the Government says are illegal.

Shopkeepers blocked main roads, set fire to buses and pelted police with sticks and stones yesterday, bringing the capital of a country of 1.1 billion people to a virtual standstill.

The Government responded by postponing the closures, which were supposed to resume today, saying that it could not control some of the worst unrest seen in a decade.

“The situation in Delhi is delicate,” Jaipal Reddy, the Urban Development Minister, said. “In this situation, the sealing [of shops] is not proper. It is now up to the court to decide.”

The crisis highlights the huge gulf between India’s vibrant and resourceful business community and its corrupt and inefficient bureaucracy.

The Government says that the illegal buildings violate 1961 zoning restrictions that confined businesses to a small number of designated markets.

Homeowners in Delhi’s leafy residential areas complain that the influx of businesses has caused congestion, pollution and crime. But shopkeepers say that the Government has been taking their taxes and bribes for years, while failing to provide new commercial space to keep pace with economic growth. They also say that as many as 500,000 people could lose their jobs if the Government presses ahead with the campaign.

Among those at risk is D. Sethi, 59, who runs a clothes shop called Radhika Fashions from the ground floor of his house in the Lajpat Nagar district in South Delhi. He said that his father opened the shop when he arrived as a refugee from Pakistan after Partition in 1947. “We didn’t get permission because no permission was needed,” he said. “We’ve been paying our taxes for 60 years. ”

The Government has classified the Central Market street in the Lajpat Nagar area as “mixed use” land to accommodate hundreds of small shops there. But hundreds more, including Mr Sethi’s, have also opened in the surrounding side streets, which are residential.

Tarun Sawhney, 37, a resident of Lajpat Nagar, said that the illegal shops had led to a breakdown in law and order in the area. Yet he also blamed the Government for poor urban planning.

Like many Delhi residents, he accused corrupt officials of working with property developers to promote the new shopping malls that have sprung up in recent years.

“They all work hand in cloak with each other,” he said. “The whole system is corrupt.” The issue has been complicated by tension between the Government and the Supreme Court.

The Municipal Corporation of Delhi began sealing shops this year after an order by the Supreme Court. Last night the Government said it would ask the court again to review its decision that 44,000 shopkeepers should vacate their premises by the end of October.

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