By Janaki Krishnan

MUMBAI (Reuters) - French retailer Carrefour (CARR.PA), which has been looking to crack the restrictive India market for seven years, plans to kick off its operations in the country this year by setting up a wholesale business.

The company also said that it was in talks with local firms as potential partners, but declined to name them.

Global retail chains have long been frustrated in their efforts to set up shop in the world's second-fastest growing major economy, where organized retail accounts for just 6 percent of industry sales and incomes are rising quickly.

Carrefour, the world's second-largest retailer, will join mega retailers such as top-ranked Wal-Mart (WMT.N) and Germany's Metro AG (MEOG.DE) in operating so-called cash-and-carry ventures in India.

Foreign firms are prohibited from owning multi-brand retail chains in India, a rule that is not expected to be relaxed in the near term.

"Carrefour will develop its activities in India with the start of cash & carry activities in 2010," the company said in an email statement to Reuters.

Indian regulations allow foreign multi-brand retailers only through franchise agreements with local players, and Carrefour has held talks over the years with various Indian firms to enter the retail market.

"Carrefour and some Indian companies have been discussing partnerships," the company said, but would not to comment on which firms it had spoken with.

India's Future Group, the country's largest retail operator with brands such as Pantaloon Retail (PART.BO) and Big Bazaar, has been the subject of media speculation as a possible partner for Carrefour.

Earlier this week, Future Group CEO Kishore Biyani told Reuters that he was in talks with several overseas retailers but did not specify which.

Foreign retailers may own up to 51 percent in single-brand retail and 100 percent in cash-and-carry ventures.

The restrictions are intended to protect the small single-shop operators that dominate retail in India.

"Starting off with a cash-and-carry business gives them the opportunity to get a first-hand feel of the Indian market and allows them to build a brand name," said Hemant Kalbag, partner with consultancy firm A.T.Kearney.

India's robust economic growth -- at more than 7 percent it trails only China among major economies -- and a burgeoning middle-class with rising spending power are magnets for foreign retailers facing declining demand in their home markets.

On Friday 19 February, Carrefour said profit for 2009 fell nearly 70 percent as sales languished in Europe.

The Indian retail market is estimated to be currently worth about $450 billion, of which organized retail with a share of 6 percent is growing at more than 20 percent a year.

Carrefour said it has been meeting local vendors and suppliers to finalize sourcing arrangements for food and non-food items.

The company already sources supplies worth about $2 billion from India, according to industry estimates.

CASH AND CARRY

Carrefour has set up two entities in India -- Carrefour WC&C India Pvt Ltd to run cash-and-carry business and Carrefour Master Franchise Company Pvt Ltd for its retail business, but neither firm has any outlets.

"Companies such as Wal-Mart and Carrefour would rather be in retail...but with the regulations being what it is I guess they have no choice but to be in the wholesale business," Kalbag said.

Overseas retailers want to control their retail operations, which has prevented them from entering India in this category.

Wal-Mart, which has a joint venture with Bharti Enterprise, the parent of top telecom firm Bharti Airtel (BRTI.BO), for a cash-and-carry venture under the brand Best Price Modern Wholesale, has said it would get into retail only when the rules were relaxed for investment in the segment.

Metro operates five cash-and-carry stores under its own brand.

(Editing by Tony Munroe and Muralikumar Anantharaman)