Indian firm courts Tesco and Wal-Mart

The Indian conglomerate, owned by telecoms tycoon Sunil Mittal, is preparing a plan for retail joint-ventures in the next three to four months.

Local press reports indicate the firm is talking with leading chains Wal-Mart and Tesco. Both supermarkets are currently barred from the branded retail market by foreign direct investment laws (FDI) which govern the sector.

Britain's top retailer Tesco, with a non-food sourcing operation in Bangalore, is reportedly the frontrunner in the deal as the retailer currently uses Bharti as a fresh food supplier.

India's Business Standard newspaper reported last month that the two firms were ironing out retail plans with an initial investment of 60bn rupees (€1.13bn), but Tesco refused to comment on this speculation.

And Bharti has also declined to outline plans, stating that it "has an existing interest in the horticulture arena and is exploring the opportunity in food retail. For now, we are evaluating options. This is at an early stage and it would be premature to comment on any speculation."​

Although foreign firms can own 100 per cent of an Indian wholesale operation and 51 per cent of a single-branded retail business, they are restricted from owning a majority share in a chain selling multiple brands.

Retailers will have to wait for further FDI reforms before they can take a controlling portion of retail outlets and enter the €172bn sector independently.

In the meantime, joint-venture operations such as the one offered by Bharti are the only entry point.

Currently, branded retail makes up just three per cent of the total food retail industry, worth around €5.78bn.

But analysts predict this is all about to change. PricewaterhouseCoopers states that the organised branded retail sector, comprised of regional or national chains, is set to grow to 10 per cent by 2010.

This represents a huge opportunity for prospective players to tap what may become the world's fifth largest consumer market by the end of the decade.

Recent legislative changes brought improvements to the FDI ration in wholesale, but foreign retailers are still restricted from building supermarket networks.

They can own 100 per cent of their Indian wholesale operations, which is a major breakthrough for foreign investors keen to have a presence in the country, albeit through the backdoor.

To many, this first phase of legislative relaxation marks an economic trend towards a liberalised retail sector and increased FDI.

A deal with Bharti Enterprises, which set up a domestic joint-venture last year with foreign insurance company Axa Asia Pacific Holdings, would provide access to the market until this happens.

The firm has interests ranging from telecommunications to fresh food exports.