Organisers of the MAMI Mumbai Film Festival said they would not show the 1959 classic Jago Hua Savera (The Day Shall Dawn) following a complaint from an Indian NGO called Sangharsh, which means struggle in Hindi.
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Sangharsh had said it was inappropriate to show the film, which was Pakistan's official Oscars entry in 1960, following an attack by militants that killed 19 Indian soldiers in Kashmir.
"Given the current situation, the Jio MAMI 18th Mumbai Film Festival with Star has decided not to programme Jago Hua Savera as part of the Restored Classics Section," organisers of the festival said in a statement.
The move comes after a group of Indian cinemas said last week that they would not screen any films featuring Pakistani artists in protest at the raid on an army base in Indian Kashmir last month.
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The ban by India's Cinema Owners and Exhibitors Association (COEA) applies to single screen cinemas in four states and is likely to affect the forthcoming release of movies Ae Dil Hai Mushkil, Dear Zindagi and Raees.
The ban came as Hindu nationalist groups pile pressure on the makers of Ae Dil Hai Mushkil (This Heart is Complicated) to drop Pakistani actor Fawad Khan from the romantic drama.
The fringe but noisy right-wing group Maharashtra Navnirman Sena has threatened to stall the October 28 release of the movie.
India blames Pakistan for the raid on September 18 which saw the Indian army respond with "surgical strikes".
Following the militant attack the Indian Motion Picture Producers' Association, which represents a number of Hindi film industry employees, passed a motion banning Pakistani artists until relations between New Delhi and Islamabad improve.
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MAMI runs from October 20-27. Jago Hua Savera, a black and white film, tells the story of a fishing village near Dhaka, now the capital of Bangladesh.
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