Tesco proposal entailing investment of USD 110 million has been cleared, sources said after the FIPB meeting held here.
After the approval, Tesco will pick up a 50 per cent stake in Trent Hypermarket Ltd, a wholly-owned subsidiary of Trent Ltd, a Tata group company.
Tesco is the first global retailer to apply for multi-brand retailing after the government allowed 51 per cent FDI in the segment in September last year.
Trent Hypermarket runs 16 outlets in the southern and western regions with support from Tesco.
The UK retailer plans to sell 14 categories of products, official sources said. The items to be sold at its stores include tea, coffee, vegetables, fruits, meat, fish, dairy products, wine, liquor, textiles, footwear, furniture, electronics and jewellery.
The FIPB, headed by Economic Affairs Secretary Arvind Mayaram, considered 12 items including Tesco's FDI proposal.
India allows FDI in most of the sectors through automatic route, government approval is required in certain sectors sensitive for the economy.
FIPB nod will allow setting up JV with Trent: Tesco
The approval by FIPB to the proposal to invest USD 110 million in the Indian multi-brand retail segment will allow to work on practicalities of setting up a joint venture with Tata group firm Trent, UK-based Tesco Plc today said.
"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. Any such announcement will be made in the usual way," a Tesco spokesperson said.
The UK-based firm became the first global retailer to get approval to enter country's multi-brand retail sector from the Foreign Investment Promotion Board (FIPB) since the government allowed 51 per cent foreign direct investment (FDI) in multi-brand retailing in September last year.
The retail major plans to initially invest USD 110 million in the multi-brand retail foray, including for the acquisition of 50 per cent stake in Trent Hypermarket Ltd, a wholly-owned subsidiary of Trent Ltd.
In 2008 Tesco PLC had announced setting up of a wholesale cash-and-carry business in India, with an initial investment of up to 60 million pounds in the first two years.
It had also entered into an exclusive franchise agreement with Trent to provide expertise and technical capability to support the Indian firm in the running of hypermarket business, under Star Bazaar stores.
Under their existing partnership, Tesco's wholesale business supplies merchandise to Star Bazaar.
India clears Tesco's $110 mln supermarket investment
(Reuters) - India's foreign investment regulator has approved a $110 million investment plan by Tesco, formally paving the way for the British retailer to venture into Asia's third-largest economy.
Tesco this month took the initial steps to becoming the first foreign company to set up a chain of supermarkets in India's $500 billion retail sector after announcing it had applied to buy a 50 percent stake in Tata Group's Trent Hypermarket .
The deal was widely expected to be cleared without much political opposition thanks to Tesco's low-profile approach and its decision to expand at a slow pace, consultants said.
The Foreign Investment Promotion Board (FIPB) also approved a proposal by British telecoms group Vodafone to take full ownership of its Indian business in a $1.6 billion deal. That proposal, however, needs final approval from the Indian cabinet.
Economic Affairs Secretary Arvind Mayaram told reporters that Tesco and Vodafone's proposals had been approved.
Tesco's decision to invest in India is seen as a vote of confidence in an economy that grew at its slowest pace in a decade in the past fiscal year and is struggling to attract foreign investors.
The venture also provides a boost for the Indian government after its decision to open up the supermarket sector in September 2012 received a muted response from overseas retailers put off by ambiguous foreign participation rules and political opposition.
A senior Tesco official, who spoke on condition of anonymity, had told Reuters it took months of arm-twisting and assurances by the government to persuade the company to take the plunge.
In October the world's biggest retailer Wal-Mart called off a joint venture with India's 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.
Tesco's India investment follows declining third-quarter sales in all nine of its continuing overseas markets for the second consecutive quarter.
The world's third biggest retailer, which makes about two thirds of its revenue in Britain, is currently in the midst of a $1.6 billion turnaround plan.