India is actively contemplating changes in the Foreign Exchange Management Act (FEMA) to allow foreign direct investment (FDI) from Pakistan in a move expected to significantly improve bilateral trade relations.
While commerce and industry minister Anand Sharma said a final view on the issue will be taken soon, a senior Indian government official said the industry ministry had already written to the finance ministry to permit foreign direct investment (FDI) from the neighbour.
"The Department of Industrial Policy and Promotion (DIPP) has sent a proposal to Finance Ministry for changes in FEMA to allow FDI from Pakistan," said the official, adding that the Indian government could change the FEMA regulations to allow FDI from Pakistan by "simply issuing a notification."
Currently, Pakistan is the only country covered by FDI restrictions related to FEMA.
Sharma, who also called on Pakistani Prime Minister Syed Yusuf Raza Gilani, said while discussing measures to normalize trade between the two countries, he also broached the issue of FDI from Pakistan as also the one related to security of investments by Indian companies in Pakistan.
"Trade and investment is an important pathway. Both sides at the level of their home ministries are addressing the issue and an appropriate view will be taken soon," the official said.
Gilani gave an assurance to Sharma that a November date for normalisation of trade between the countries would be implemented.
In order to address the security concerns over investments from Pakistan, FDI proposals from the neighbouring country can be routed through the Foreign Investment Promotion Board (FIPB) which is headed by economic affairs secretary in the finance ministry, the official said.
Under the current FDI policy, a non-resident entity can invest in India but Pakistani citizens are not allowed.