Reserve Bank on India on Friday permitted Indians to invest in Pakistan, a move which will help enhance bilateral trade and investment.
The RBI notification comes on a day when external affairs minister SM Krishna is visiting Pakistan aimed at strengthening bilateral relations.
"It has now been decided that the overseas direct investment by Indian parties in Pakistan shall henceforth be considered under the approval route," RBI said in a notification.
The moves comes days after India allowed investment from Pakistan.
"Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security), Regulations, 2004 are being issued separately," the RBI said.
Bilateral trade between the neighbours stood at about US$ 3 billion and is expected to reach US$ 6 billion in the next three years.
Earlier, Pakistan had expressed concern over certain issues related with investments from India.