New Delhi, Dec. 30: UK-based retailer Tesco today received permission to open multi-brand retail stores in a joint venture with the Tatas.
Sources said Tesco stores would open only in the second quarter of next fiscal in just two states — Karnataka and Maharashtra.
The Foreign Investment Promotion Board (FIPB) cleared the $110-million initial investment plan of Tesco, paving the way for the first global retailer to enter the $500-billion retail market in the country.
Tesco, the third biggest retailer in the world, had applied to enter the multi-brand retail segment earlier this month.
“Tesco is pleased that the FIPB has agreed to our proposal. This will now allow us to work on the practicalities of setting up the joint venture with Trent,” a spokesperson for Tesco said.
India allows FDI in most of the sectors through the automatic route; government approval is only required in certain sensitive sectors.
The decision brings a much-needed relief to the government, which had failed to attract a single application since it allowed foreign investors to own up to 51 per cent of their operations in the country.
After the approval, Tesco will pick up a 50 per cent stake in Trent Hypermarket, a wholly owned subsidiary of Trent, a Tata group company.
Trent runs 16 Star Bazaar stores in four states, but the Tesco joint venture will operate stores only in two of those states (Maharashtra and Karnataka) under the Star Daily and Star Market banners, a commerce ministry official said. The other two states, Gujarat and Tamil Nadu, do not allow foreign investment in multibrand retail.
Sources said Tesco planned to sell 14 categories of products — tea, coffee, vegetables, fruits, meat, fish, dairy products, wine, liquor, textiles, footwear, furniture, electronics and jewellery.
In October, Walmart called off a joint venture with Bharti Enterprises, citing unfriendly regulations.
Tesco has had a franchise agreement to provide support to Trent’s Star Bazaar chain since 2008, but is now expected to open three or four stores a year under a slow expansion plan designed to comply with sourcing regulations.
Meanwhile, sources say French retail major Carrefour is likely to follow in Tesco’s footsteps.
It is likely to formally apply for permission to enter multi-brand retail next month.