India allows investments from Pakistan

India on Wednesday overturned its ban on foreign investment from neighbouring Pakistan, the Commerce Ministry said, in a move designed to build goodwill amid a renewed push for a peace settlement.
“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,” according to an official notification issued by the Department of Industrial Policy and Promotion (DIPP) in New Delhi.
Pakistan was the only country in the negative list under the Foreign Exchange Management Act, or FEMA, which prohibits investing in India. The government removed Sri Lanka from the list in 2006 and Bangladesh in 2007. However, in April this year, DIPP initiated the move to remove Pakistan from this list and moved the Finance Ministry on the issue for amending the rules to allow Pakistan investments. A ban on investments in defence, space and atomic energy will remain and all propositions must be notified to the Indian government.
The decision to accept foreign direct investment from Pakistan was taken in April this year when the trade ministers of the nuclear-armed South Asian rivals met in New Delhi. They also discussed ways to ease visa curbs on business travel and the possibility of allowing banks from both countries to open cross-border branches.
India and Pakistan, which have fought three wars since independence, are channeling their efforts into “trade diplomacy” in a bid to build enough trust to tackle the more troublesome issues that divide them, such as Kashmir. 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 6,800 items 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. India also agreed to reduce its sensitive list of 865 items that are not given preferential market access under the South Asia free trade agreement by 30 per cent. The matter is in the final stages of decision making. Official bilateral trade is just $2.7 billion and heavily tilted in New Delhi’s favour (India exported goods worth $2.33 billion to Pakistan last year, while imports from there were worth $330 million), according to most recent figures, but unofficial trade routed through third countries is estimated at up to $10 billion.
In fact, Pakistan made the first gesture to deepen trade ties with India in March by replacing its restrictive positive list of 2,000 items allowed to be imported from India with a negative list of 1,209 banned items. This move increased the number of exportable items from India more than three-fold.
In further progress, the neighbours opened a second trading gate in April along their heavily militarised border, boosting the number of trucks able to cross daily to 600 from 150. “We welcome this decision,” Pakistani foreign ministry spokesman Moazzam Khan told AFP.
“It will definitely benefit Pakistani investors and industrialists. We hope this decision will be fruitful for the people of both countries.” Pakistani businessmen also welcomed the move.
“We do appreciate this action by the government of India, but what will be more interesting for me is when the Indian authorities lift its ban on Indian investors investing in Pakistan,” said Majyd Aziz, involved in the import and export of minerals and in shipping.
“For a better economic future in South Asia, it will be a huge step when businessmen from both the countries can freely invest in each other’s country.” Zubair Motiwala, chairman of the board of investment in Sindh province, said it was the “right decision taken at the right time”.
“Allowing our country to invest in India is a great confidence booster and will pave the way for more cordial bilateral relations,” he said. The warming commercial ties underline the new relevance of the private sector in the peace process, analysts said. Pakistan has called for a “new era” in economic collaboration with India to build “a legacy of peace and prosperity for our future generations”.