The Communist Party of India (Marxist), which props up the ruling coalition, urged the government on Wednesday to establish a licensing system for retail chains and prevent the entry of foreign players like Wal-Mart.
The CPI-M said that in a country where there were millions of small grocery store owners and street vendors, "the potential social costs of growth and consolidation of organised retail ... is enormous".
"The Communist Party of India (Marxist) proposes a system of licensing should be introduced for organised retail," it said.
"In addition the ... government should also abandon the move to permit foreign direct investment in retail trade through the back door as in the case of the joint venture between Wal-Mart and Bharti Enterprises."
The CPI (M), which has 44 MPs in the 545-member lower house of parliament, said the government should bring in licensing agreements that would prevent large retail firms from capturing a big slice of the market and curb the number of their outlets.
India's Bharti group and Wal-Mart aim to set up an equal joint venture for cash-and-carry business in India's fragmented $300 billion retail industry, of which around $200 billion is in the food and grocery sector.
If Wal-Mart Inc., the world's biggest retailer, entered India, it could be the "wedge in the door", CPI(M) General-Secretary Prakash Karat told a news conference.
India's retail sector is dominated by small family-run stores and is forecast to more than double in size by 2015.
The powerful communists have stepped up opposition to the economic policies of the centrist Congress party-led coalition after Congress suffered losses in state and municipal elections this year.
The entry of big private players into retail with food marts and hypermarkets has millions of small grocery store owners and street vendors worried, with both the left and the right trying to capitalise on their concerns.
This month, hundreds of street vendors armed with iron rods and sticks attacked three food marts, owned by Reliance Industries Ltd., one of India's biggest private conglomerates, blaming Reliance for taking away their customers.
"The entry of big private players into the retail sector and opening up of the sector to foreign companies would lead to the loss of livelihood for thousands," said Karat.