Tesco has admitted that its plan to be the first multinational supermarket retailer in India has unravelled.
The world's fifth-biggest supermarket chain said it had ended talks with Bharti Enterprises to set up a joint venture in India's £145bn-a-year retail sector after discussions failed.
It now looks like Wal-Mart, the biggest global retailer, could steal the march into the world's eighth-largest retail market.
Sunil Mittal, the telecommunications tycoon who controls Bharti, refused to be drawn on his negotiations with Tesco. "We will make an announcement shortly on a global partner for our retail foray," he told the Financial Times last night.
Tesco, Carrefour and Wal-Mart have been linked to Bharti but it appears that only the US chain is still in the race.
It is thought that the Tesco-Bharti deal fell apart in the final stages of the talks after the two parties failed to find common ground on the pace of expansion, with Bharti opting for a more aggressive opening programme than Tesco envisaged.
Tesco, which is fiercely proprietorial over its international expansion plans, is also thought to have felt frustrated by leaks about the talks.
Under Indian rules, no foreign direct investment is allowed in the retail sector, except forsingle-brand stores, which means big groups have to sign a franchise or licensing agreement with local companies.
Metro, the German chain, has managed to enter India by opening a couple of cash-and-carry stores.
India is on track to become the fifth-biggest retail market by 2010, according to McKinsey. Organised retailing makes up 3 per cent of the market, giving big chains scope to expand.
Tesco has been watching India closely for a few years and in September raised expectations that it was close to signing a deal with Bharti after Andrew Higginson, chief executive, said the chain would make some sort of announcement on its India plans by the end of the year.
Confirming that it had walked away from discussions with Bharti, Tesco said: "We remain excited by the opportunities available in India and continue actively to review how best we might enter the market." It is thought it will offer an update when it announces its 2006-07 results next spring.
One rival executive expressed surprise yesterday that the talks had unravelled."Four weeks ago Tesco was very close to signing something. The talks were well advanced but the big issue for every one is ownership. Any contract has to involve taking control further down the road. Maybe they found the legal constraints too complex."