Tesco, the world's No.3 retailer, said it plans to enter India by setting up a wholesale cash-and-carry business and helping Indian conglomerate Tata Group to grow its hypermarket business.
The expansion is the latest by the British supermarket group, which last year opened its first stores in the United States and last month made a big push into banking.
It also follows a similar move by U.S. rival Wal-Mart, which has teamed up with India's Bharti Enterprises, as the world's biggest retailers seek a foothold in the world's second most populous country, despite government restrictions.
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, and the cash-and-carry, as well as the deal with Tata, would give it valuable experience.
BlueOar analyst Greg Lawless applauded the move.
"It's a sensible deal. They're not betting the farm on it," he said. "It gets them entry into the market and that's what it's all about. But it's a very, very long term one."
Tesco said it would make an initial investment of up to 60 million pounds ($115 million) in the cash-and-carry business over the first two years.
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 Tata Group's business interests span chemicals, hotels and tea, and it also owns some of Britain's best-known businesses, including steelmaker Corus and the Jaguar and Land Rover car brands.
"This is another exciting development for Tesco. It complements our entries into China and the United States, giving us access to another of the most important economies in the world," Tesco Chief Executive Terry Leahy said in a statement.
"Our agreement (with Tata) will enable us to share our international retail expertise, supporting Trent in the development of their Star Bazaar hypermarket business and benefiting Indian consumers," Leahy said.
Tesco shares have outperformed the DJ Stoxx European retail index by 5 percent this year. They closed at 394.1 pence on Monday, valuing the business at about 30 billion pounds.