"The way I envisage it is that it must involve investment not only in the front-end, but also in the back-end," Scindia told the Sunday Telegraph.
A committee formed to explore deregulation in the sector has submitted a favourable report and ministers are preparing to forward the proposal to Cabinet.
It is likely to include obligations on new entrants to invest heavily in "back-end" warehousing, food processing and refrigerated transport networks and to create new jobs in rural India.
"For any foreign investor -- take your country (UK) for example, your Tesco, or France`s Carrefour -- today (the market is) 100 per cent open in the cash-and-carry business.
"But if you extend that into the agricultural sector, I`m sure they will like to come into the back-end and they must.
"That`s where the value creation happens and if we can do as much of that in the rural hinterland, it will assist their business model from a cost point of view and it will assist India`s story in terms of inclusive economic growth," he said.
He said India is currently the world`s largest producer of milk, the second largest in fruit and vegetable output and third in grain production, but barely 5 per cent of its produce is processed and 30 per cent rots before it reaches the market.
The government believes supermarket giants like Tesco, Carrefour and Walmart can play a vital role in revolutionising the sector and investing heavily in cold-chain logistics and food processing.
Now, they are limited to "single-brand retail" and cash- and-carry operations, but the carrot to lure them into heavier investment will be the opportunity to open their own multi- brand supermarkets as majority partners.
A Tesco spokesman said: "We already have a successful franchise agreement with the retail arm of Tata to help them grow their Star Bazaar hypermarkets and we are also developing a wholesale business in India."
"We`ve made no secret of our desire to build a retail business in India and would be very keen to bring these benefits to Indian consumers if regulations permit," he said.