KARACHI: India has opened up its doors to Pakistani citizens and entities incorporated in this country to invest in shares and convertible debentures of an Indian company under the Foreign Direct Investment Scheme.

According to a circular released by the Reserve Bank of India (RBI) on Wednesday and a press release issued by the Indian High Commission in Islamabad on Friday, such investment would have to be made after prior approval of the Foreign Investment Promotion Board of the Government of India. It will also be subject to certain terms and conditions.

“The Indian company, receiving such FDI, must not be engaged in sectors/activities pertaining to defence, space and atomic energy and sectors/activities prohibited for foreign investment,” the RBI said.

The move comes quickly on the heels of the Aug 1 decision by the Indian commerce ministry that overturned a ban on foreign investment (in industrial ventures) from Pakistan, permitting a citizen or entity from Pakistan to make such investments in India.

The decision to accept the FDI from Pakistan was taken in April this year when the two trade ministers met in New Delhi and was thought to be in response to Pakistan’s decision to grant India the `Most Favoured Nation (MFN)` status by the end of the year.

Traders and investors on this side of the border were glad over the second step in ‘trade diplomacy’ in a single month as they believed it would help tackle troublesome issues such as Kashmir which has soured relations between the two countries, since their creation 65 years ago.

A senior stock broker, however, thought the Indian decision to be “symbolic”.

He did not expect an imminent rush of funds to equity markets on the other side of the border.

The Managing Director of Karachi Stock Exchange, Nadeem Naqvi, however, commented that the decision by RBI to allow investment in shares and debentures of Indian companies was a welcome step. He said that it was a natural evolution of the thawing of relations between the two neighbours where the potential for bilateral business and investment relationship was huge.

An industrialist said: “Now that India has permitted Pakistani nationals and corporates’ investment in industrial ventures and equity markets, everyone looks forward to the RBI to remove a Pakistan-specific regulation that bars Indian companies from investment in Pakistan.”