Trade diplomacy: India opens doors to Pakistan investment

A ban on investments in defence, space and atomic energy will remain.

Aditi Phadnis August 02, 2012


India on Wednesday overturned its ban on foreign investment from Pakistan in an unprecedented move amid a series of confidence building measures to build goodwill between the neighbours.

“The government of India has reviewed the policy... and decided to permit a citizen of Pakistan or an entity incorporated in Pakistan to make investments in India, under the government route, in sectors/activities other than defence, space and atomic energy,” said a statement from the Indian commerce ministry.

Earlier, no investment from person or company resident or registered in Pakistan was permitted. The move will allow all sorts of investments from Pakistan without any limit on the quantum to be invested. However, a ban on investments in defence, space and atomic energy will remain and all propositions must come via the Indian government.

“We welcome this decision,” said Pakistan foreign ministry spokesperson Moazzam Khan.

“It will definitely benefit Pakistani investors and industrialists. We hope this decision will be fruitful for the people of both countries.”

The decision will take place with immediate effect and accordingly the Consolidated FDI Policy effective from April 10, 2012 has also been amended.

Bilateral relations between India and Pakistan have scaled new heights since April last year. Trade ties between the two neighbours have seen new initiatives. The decision to accept foreign direct investment from Pakistan was taken in April when the trade ministers of the South Asian rivals met in New Delhi.

The improved relations between the rivals stem from Pakistan’s decision to grant India “Most Favoured Nation (MFN)” status by year end, meaning Indian exports will be treated the same as those from other nations.

MFN status will mean India can export 7,500 tariff lines to Pakistan, up from around 2,000 at present, and the countries aim to lift bilateral trade to $6 billion within three years, officials have said. Official bilateral trade is just $2.7 billion and heavily tilted in New Delhi’s favour, according to most recent figures, but unofficial trade routed through third countries is estimated at up to $10 billion.

The neighbours also discussed the possibility of allowing banks from both countries to open cross-border branches. State Bank of Pakistan and Reserve Bank of India had recently met and finalised a deal to open up banking outlets in each other’s country which would reduce the transaction cost of exporters. The final nod by India’s Department of Economic Affairs and Department of Industrial Policy and Promotion (DIPP) and the finance ministry of Pakistan is now being awaited.

India has also offered to ease visa curbs on business travel and for Pakistani businessmen. The decision is yet to receive formal approval from Pakistan. In further progress, the newly-built integrated check post (ICP) at Attari-Wagah border was opened to boost trade.


Published in The Express Tribune, August 2nd, 2012.

Facebook Conversations