India is likely to open up its doors for Tesco and other overseas supermarket giants to set up multi-brand retail stores in the country, Minister of State for Commerce and Industry Jyotiraditya Scindia has indicated.
"The way I envisage it is that it must involve investment not only in the front-end, but also in the back-end," Scindia told the Sunday Telegraph.
A committee formed to explore deregulation in the sector has submitted a favourable report and ministers are preparing to forward the proposal to Cabinet.
It is likely to include obligations on new entrants to invest heavily in "back-end" warehousing, food processing and refrigerated transport networks and to create new jobs in rural India.
"For any foreign investor, take your country [UK] for example, your Tesco, or France's Carrefour, today [the market is] 100% open in the cash-and-carry business.
"But if you extend that into the agricultural sector, I'm sure they will like to come into the back-end and they must.
"That's where the value creation happens and if we can do as much of that in the rural hinterland, it will assist their business model from a cost point of view and it will assist India's story in terms of inclusive economic growth," he said.
He said India is currently the world's largest producer of milk, the second largest in fruit and vegetable output and third in grain production, but barely 5% of its produce is processed and 30% rots before it reaches the market.
The government believes supermarket giants like Tesco, Carrefour and Walmart can play a vital role in revolutionising the sector and investing heavily in cold-chain logistics and food processing.
Now, they are limited to "single-brand retail" and cash-and-carry operations, but the carrot to lure them into heavier investment will be the opportunity to open their own multi-brand supermarkets as majority partners.
A Tesco spokesman said: "We already have a successful franchise agreement with the retail arm of Tata to help them grow their Star Bazaar hypermarkets and we are also developing a wholesale business in India."
"We've made no secret of our desire to build a retail business in India and would be very keen to bring these benefits to Indian consumers if regulations permit," he said.
