Photo: Reuters

In a move that is expected to galvanize the retail sector in India, the Narendra Modi government has approved online giant Amazon’s proposal to set up physical stores to sell food products.

The Seattle-based company will be spending US$ 515 million over next five years, reports Business Standard. Indian online grocery stores Grofers and Big Basket could be the next to get a go-ahead for setting up food outlets, the daily added.

In June last year, the Indian government allowed 100% foreign direct investment in multi-brand food retail. However, the food products have to be produced, processed or manufactured in the country.

Amazon proposal also happens to be the first foreign direct investment case to get an in-principle clearance after the Foreign Investment Promotion Board was recently shut down. The online major had submitted its application to the Department of Industrial Policy & Promotion in January.

India’s retail market continues to be dominated by informal sector, which has a market share of above 80%. However, organized retail market is currently growing at a rate of 20%-25% per annum and is estimated to reach approximately 18-20% of the total sector by 2020.

Global brands have been showing increasing interest in the Indian market due to the growing opportunities in this sector. Over 40 major international brands have entered the country over the last two years.