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NEW DELHI—Partisan bickering in India's Parliament has stalled an important piece of Prime Minister Narendra Modi's economic agenda: a constitutional amendment that would create a simplified nationwide tax system to replace a commerce-stifling patchwork of state levies.

The winter session of India's legislature ended Wednesday without a vote on the measure in the upper house, where Mr. Modi's Bharatiya Janata Party is in the minority, after lawmakers spent weeks trading jabs over graft allegations involving top politicians.

Fixing the tax system is "in the big-bang reforms category, so had it passed, it would have been a great sentiment booster—and a necessary one," said D.K. Joshi, chief economist at ratings company Crisil. Instead, he said: "The economy suffers while politics overrides everything."

Mr. Modi's landslide victory in the 2014 national elections, which gave his party a commanding majority in Parliament's lower house, raised expectations among investors for swift and sweeping economic change in India.

The prime minister instead adopted a more incremental approach, like working to make state enterprises more efficient, rather than privatizing them. Now he is facing a complicated political situation.

Mr. Modi and his party suffered a significant blow last month when the BJP lost badly in state elections in Bihar to an opposition alliance.

Facing opposition protests and fearing a rural backlash ahead of the Bihar vote, Mr. Modi in August retreated from legislative efforts to ease India's strict land-acquisition law and make it easier for the government to get land for industry and infrastructure.

Mr. Modi also failed to get a vote on the tax amendment in the previous session of Parliament, which ended in August.

The gridlock is the result, in part, of a tit-for-tat strategy by the main opposition Congress party, whose final years in power were marred by protests led by the BJP. When Congress was in government, the BJP blocked tax legislation similar to what it is now trying to pass.

With major plans stymied in Parliament, Mr. Modi has sought to breathe life into the economy through executive actions and other moves, including a plan to revive heavily-indebted power-distribution companies and ease foreign-investment limits in some industries.

For most of Parliament's winter session, disruptions in the upper house were accompanied by political tussling and mudslinging outside.

Congress accused Mr. Modi of a political vendetta after the party's president, Sonia Gandhi, and her son, Rahul, were summoned before a magistrate to answer a complaint alleging cheating and criminal breach of trust.

Emerging from court Saturday, Mr. Gandhi said Mr. Modi had encouraged "false allegations" to frighten political rivals. The government said it wasn't involved in the case. The complaint was filed by politician Subramanian Swamy in 2012. He later joined the BJP.

Politics were also disrupted after the federal Central Bureau of Investigation searched the offices of a senior aide to the chief minister of Delhi, Arvind Kejriwal, whose Aam Aadmi Party is aligned against the BJP.

A post on Mr. Kejriwal's official Twitter account called Mr. Modi a "coward and a psychopath." The episode spiraled to include corruption allegations by Mr. Kejriwal against BJP Finance Minister Arun Jaitley, who in turn filed a defamation suit against Mr. Kejriwal.

These much publicized spats narrowed the space for a political compromise needed to break the logjam on economic policy-making.

On the tax amendment, Congress has said it doesn't support some key provisions. It argues the tax rate should be capped at 18%—and that number must be included explicitly in the constitution—to prevent a creeping increase by future governments.

It also wants to do away with a proposed 1% additional levy designed to help manufacturing states.

Mr. Jaitley said the government is willing to find ways to address Congress's second demand, but won't legislate the tax rate so future governments have flexibility. He accused Congress of an "obstructionist attitude" that, he said, "inflicts an economic injury on the country."

"Sometimes it's this side to blame, sometimes it is that side," said M.R. Madhavan, president of PRS Legislative Research, a New Delhi-based think tank. "In the end, Parliament has become a forum less for debate and more to settle political scores."

Write to Niharika Mandhana at niharika.mandhana@wsj.com

(END) Dow Jones Newswires

December 23, 2015 08:25 ET (13:25 GMT)

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