In a move that will be welcomed in New Delhi and other south Asian capitals, the British government has decided to rethink its controversial plans to impose an annual cap on immigration from non-European Union countries.

The decision follows strong opposition from leading British businesses who argued that a rigid limit on immigration would make it difficult for them to recruit the right people when they needed them and damage the economy. There were also concerns that a hawkish immigration policy went against the government's claim that Britain was “open for business”.

“Attracting global talent pays huge dividends in terms of investment, jobs and tax,” the chief executive of a leading lobby group was reported as saying.

Home Secretary Theresa May is to announce a wide-ranging consultation with business groups and universities before formulating a new policy.

The government insisted that it remained committed to its election pledge of bringing down the number of migrants from “hundreds of thousands to tens of thousands” but would listen to the concerns of those likely to be affected by it before taking a final decision.

Critics accused the Tory-led ruling coalition of capitulating to pressure from the business lobby. They recalled how the same Tory Ministers who were now echoing the concerns of big employers had dismissed objections from migrant groups.

“The bottom line is they really don't want to hurt the big multinationals and the banks,” a source involved in drawing up the policy told The Financial Times.

The Liberal Democrats, who had opposed the cap during the election campaign but were forced to accept the idea after joining the government, sounded both amused and irritated at the Tories' u-turn.

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