Tesco, the world's number three retailer, said it plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata Group to grow its hypermarket business.
The long-awaited move into the world's second most populous country is the latest expansion by the British supermarket group, which last year opened stores in the United States and last month made a big push into banking.
It follows a similar step by US rival Wal-Mart, which has teamed up with India's Bharti Enterprises, as the world's top store groups seek a foothold in India's $350bn (£184m) retail industry, amid forecasts it could double in size by 2015.
Foreign multi-brand retailers are currently limited to wholesale or licence and franchise arrangements in India.
Tesco International and IT Director Philip Clarke told reporters the firm was keen to set up its own retail business in India, should the legislation change.
"If and when it changes, our wholesale business and the agreement with the Tata Group gives us great experience of the Indian marketplace and consumer," he said on a conference call.
Tesco said it would make an initial investment of up to £60m in the cash-and-carry business over the first two years.
It plans to open its first outlet in Mumbai towards the end of next year, with further distribution hubs in Delhi and Bangalore that will support a network of smaller cash-and-carry stores supplying thousands of small retailers and restaurants.
Under the deal with Tata Group's retail arm Trent, Tesco will, for a fee, provide its retail expertise and technical capability to support the development of its hypermarket business, Star Bazaar.
Trent currently has four hypermarkets, with plans to grow to 50 stores over the next five years. The stores will be supplied by Tesco's cash-and-carry business.
Trent shares jumped more than 18 per cent in a weak Mumbai market, and at 0745 GMT were up 13.9 per cent at 565 rupees. Tesco shares, which have outperformed the DJ Stoxx European retail index by 5 per cent this year, were steady at 393.9 pence, giving a market value of about £30bn.
Tesco's Clarke denied that Britain's biggest retailer was over-stretching itself with its expansion plans, saying the move into India had been carefully thought out with teams researching in the country for the past three years.
India has long been viewed as a potential gold mine for international store groups as living standards rise and the middle class grows.
Less than than 5 per cent of the industry is currently in the hands of large, modern retailers, with protests by traders and concerns about job losses slowing the expansion of even large local groups such as Reliance Retail, a unit of India's most valuable firm Reliance Industries.
Tesco will compete with the cash-and-carry operations of Germany's Metro AG and Shoprite Holdings, as well as Wal-Mart's venture with Bharti. France's Carrefour has also said it plans to enter the wholesale market.
Britain's Marks & Spencer in April formed a venture with Reliance Retail for stores to sell clothes and homeware.
Trent also runs department stores, bookstores, and manages Benetton Group's Sisley stores in India.
The Tata Group's interests span chemicals, hotels, telecoms and tea. It also owns two of Britain's best-known businesses, steelmaker Corus and Jaguar and Land Rover cars.