New Delhi: Uttar Pradesh chief minister Mayawati has ordered the closure of 10 stores run by Reliance Retail Ltd, in a blow to attempts to modernize the country’s mostly fragmented $350 billion (Rs14.35 trillion) retail industry.

Her move comes days after Reliance Retail opened its Fresh stores in Lucknow. The company already runs stores in Noida in Uttar Pradesh. The chief minister has also ordered the closure of stores run by the Kolkata-based RPG Enterprises Ltd.

The state has also set up a panel to study its policy on retail store chains. The panel will study issues such as law and order, health and hygiene, and the location of stores, the state government said in an e-mailed news release.

Reliance Industries’ spokesman Tushar Pania declined to comment. Reliance Retail, a unit of Reliance Industries, operates around 250 stores across India.

A senior official of Reliance Industries, who asked that he not be named, said the closure “came as a shock to us". Reliance is investing around Rs25,000 crore over several years in its retail venture.

The decision of India’s most populous state comes as the nationwide expansion of retail chains offering discounted prices draws protests from political parties, street vendors and small-shop owners. Communist parties, key allies of the ruling United Progressive Alliance government, have sought restrictions on the opening of retail stores by large companies and oppose foreign investment in them.

Small traders are asking companies to “Quit Retail". Reliance has had its outlets in Ranchi and Indore trashed by protestors earlier this year.

On Wednesday, a group of people protested and raised slogans against the companies at Reliance Fresh and RPG’s Spencer’s outlets in Lucknow and smashed windowpanes.

“I have constituted a high-level committee to review the whole affair and until the committee gives a green signal, Reliance Fresh stores will remain shut," said state chief minister Mayawati.

“The decision of the state government will send adverse signals and might affect the development of the state," said the Associated Chambers of Commerce and Industry of India, an industry lobby group, in an emailed statement.

“There cannot be fight between a lion and a goat," said B.L. Kanchal, president of Rashtriya Vyapar Mandal, who led a protest at a Reliance Fresh outlet in Lucknow on Wednesday.

“These big people should restrict to doing bigger businesses and let the small people to do small businesses. The big guys should not interfere in small guys’ businesses," he added.

On Thursday, Uttar Pradesh also decided to withdraw its new agriculture policy that allows contract farming. Some modern retailers planned to enter or already have entered into partnerships with farmers to ensure steady supplies of fresh produce for their chains.

“I thank the chief minister and congratulate her for stopping contract farming," Kanchal said.

Modern retailers have encountered hurdles in many states. The West Bengal agricutural marketing deparment, run by the Forward Bloc, had tried to withold licences to Reliance to source and sell fresh produce. And the Kerala government is considering an outright ban on modern retailers.

The closure of the stores in Uttar Pradesh is temporary and a final decision will be taken after the panel submits its report, the Uttar Pradesh government said. The panel, headed by state cabinet secretary Shashank Shekar Singh, will submit its report in about a month, it added.

The closure order won’t apply to retail store chains located in shopping malls, according to Shailesh Krishna, principal secretary to Mayawati.

India’s retail industry is forecast to double in size by 2015 and both local and foreign companies are keen to enter the market. India’s biggest companies and groups, including Reliance and the Aditya Birla Group, are building networks of stores to grab a share of the organized retail market. Sales at chain stores in India may rise more than eightfold to $97 billion by 2012, consultant Technopak Advisors Pvt. Ltd has said.

Earlier this month, Wal-Mart Stores Inc., the world’s biggest retailer, and Bharti Enterprises Ltd agreed to set up wholesale stores and a supply chain in the country.