Sources said with the home ministry approving a plan to treat foreign direct investment from Pakistan at par with those from Bangladesh, it was only a matter of time before the government notified the new norms. In the next stage, the finance ministry has to clear the proposal making it possible for the Reserve Bank of India to amend Foreign Exchange Management Act (Fema). Over the years, the government has pruned the negative list and Pakistan remains one of the last few countries on the negative list for investment.
Allowing investment from Pakistan is one of the elements of the trade and investment related measures to improve business links between neighbours. Even during the commerce secretary-level talks in November, the issue was discussed but a commitment was not given.
Since then, a go-ahead has been received from the home ministry but it may be a while before the rules are actually notified. Besides, officials said, it will depend on what India gets in return. Getting most-favoured nation (MFN) status is a key demand for India, which has been pending with Islamabad since 1996 and even now there are few signs of Pakistan actually moving ahead with the decision. The rules would stipulate the modalities such as security clearance and approval from the Foreign Investment Promotion Board.
Also, analysts said that given the history of political relations, it was unlikely that investors from across the border or even Indian companies would set up units. "Even if relations were to normalize, it will initially be limited to trade," said a trade economist.
The concerns are visible in the banking space where the two governments had proposed to allow opening of branches on a reciprocal basis. Although State Bank of India and Bank of India had sought permission to open branches in Pakistan, both are having second thoughts. On its part, SBI, the largest lender in the region, has cited high capital requirement in Pakistan while putting its plan on hold.
Bank of India is more upfront and has said that there are worries over the safety of its employees and safety of the assets that it would acquire once permitted to run branches in Pakistan. Even State Bank of Pakistan, which had approached RBI nearly six months ago, is going slow.
Businessmen say a lack of banking facility between the two countries is one of the major impediments in improving trade relations.
