Indian giant Reliance Retail is to lay off 1,000 staff in the face of continuing protests by small business owners who fear that the emergence of modern retailers threatens their livelihoods.

The lay-offs affect approximately one third of staff in Uttar Pradesh, India’s most populous state and are a serious blow to Reliance and so-called organised retail.

Multiple store groups have been growing rapidly in India, where a fast-emerging middle class is fuelling a consumption boom. However, they face hostility from groups including small shopkeepers, middlemen and politicians.

Attacks on RelianceFresh food shops in Uttar Pradesh led the state government to order the closure of 10 stores in August. Reliance’s decision to lay off more than a third of its workforce in Uttar Pradesh illustrates the extent of opposition to modern retailers and is likely to worry foreign entrants such as Wal-Mart, which intends to open cash and carry shops in partnership with local company Bharti.

A Reliance spokesman confirmed the lay-offs and told Reuters: “It’s a critical situation.” He said: “We do not have plans to leave Uttar Pradesh, but for the moment everything is on hold.”

Last weekend, police ordered the closure of 15 Reliance stores near New Delhi. Two shops in the state of Orissa were ransacked by local traders.