Tesco is likely to open a retail chain in India if restrictive foreign investment laws in the country are lifted.

The grocer revealed its ambition for retail stores as it disclosed it will develop a wholesale cash and carry business in India and partner with the retail arm of Tata to develop the latter’s hypermarket business, Star Bazaar.

Tesco International and IT director Philip Clarke admitted that there is no sign that India’s Foreign Direct Investment laws will change imminently, but said: “We would be keen to start a retail business if and when that changes. This deal means we are here should that moment come.”

The FDI legislation is unlikely to change until at least the end of next year, after the country has its general election, although it is understood there is some movement in government towards liberalisation.

Tesco will open three Indian cash and carry stores, with the first planned to debut in Mumbai at the end of next year. The outlets will deliver grocery and non-food products to small retailers, restaurants, “kirana” shops and other business owners.

Clarke said the wholesale business will supply merchandise to Tata’s Star Bazaar, but that would not mean an influx of Tesco-branded products. “The majority of the products will be locally sourced, but we may introduce a small foreign range for a limited number of locations,” he added.

The deal with Tata’s retail arm, Trent, will involve Tesco lending its expertise to expand the four-hypermarket business to 50 stores over the next five years. Clarke said there is no intention to jointly brand Star Bazaar, adding: “Star Bazaar is starting to mean something in India and it is Tata’s brand”.

Tesco will help bolster Star Bazaar’s non-food offer. “Trent have told us that they want a wider range of electronics,” said Clarke. Revenue at the Indian venture would be “very small initially”, he added.

Tesco’s venture mirrors that of rival Wal-Mart, which signed a deal to open cash and carry stores with Bharti Enterprises last year.

Arvind Singhal, chairman of Indian retail consultancy Technopak, said: “Cash and carry is a particularly attractive business opportunity in India against the backdrop that less than 4 per cent of all retail consumption is channelled through modern retail. The overwhelming volume of retail transactions are conducted through almost 15 million independent shopkeepers and street vendors.”

Tata at a glance

Tata, founded 140 years ago, is India’s largest private company, with interests ranging from steel to shopping. Revenues this year are forecast to be US$62.5 billion (£32.95 billion).

Retailing, under the umbrella of the Trent division, is only part of Tata’s business interests.

The group employs about 350,000 people worldwide and has 27 publicly listed enterprises.

Alongside Star Bazaar, Tata operates entertainment chain Landmark, consumer electronics business Croma and fashion operation Westside.

Trent managing director Noel Tata said: “We are extremely excited about our association with Tesco. Our ability to access Tesco’s retail expertise will play an important role in our endeavour to offer a unique shopping experience.”