trade circles advise caution India allows investments from Pakistan

KARACHI, Aug 1: India overturned on Wednesday a ban on foreign investment from Pakistan, the Indian commerce ministry said.

According to reports reaching here, the move is aimed at building goodwill amid a renewed push for peace.

`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,` said a statement from the ministry.

The ban on investments in defence, space and atomic energy will remain and all propositions must be notified to the Indian government.

The decision to acceptforeign direct investment from Pakistan was taken in April this year when the trade ministers of the two countries met in New Delhi.

They also discussed ways of easing visa restrictions on business travel and the possibility of allowing banks from both countries to open crossborder branches.

The `trade diplomacy` is being used as a tool to tackle troublesome issues such as Kashmir.

Indian sources pointed out that the improved relations between the rivals stemmed from Pakistan`s decision to grant India `most favoured nation (MFN)` status by the end of the year. In furtherprogress, the neighbours opened in April a second trading gate along their heavily militarised border, boosting the number of trucks able to cross daily to 600 from 150.

On the Pakistani side, there was no immediate excitement on Wednesday over the development. An industrialist said the Indian Commerce and Industry Minister Anand Sharma had announced on June 8 that Pakistani investment, whatever the amount, was allowed to come to India.

He said: `We know that it will not be a big amount.

The minister had stressed that engaging Pakistan was essential for the South Asian Free Trade Agreement to move forward.

At a time when Pakistan was witnessing a plunge in foreign investment into the country and many local entrepreneurs were moving to set up industries in Sri Lanka, Bangladesh and countries in the Middle East and Africa, the opening up of another gateway to India was looked down upon as undesirable by several economists and industrialists.

According to figures released by the State Bank of Pakistan, foreign investment in the country fell 65.6 per cent to $680.4 million in the year ended on June 30 from $1.98 billion the previous financial year.

Hit by political instability and the energy crisis, local and foreign investors were also loathe to make new investment in industries in Pakistan. While everyoneadmitted that `free-trade` regime was for the overall good, some economists like Sayem Ali at the Standard Chartered Bank thought it was a `smart move` by India.

He reminded that Pakistan had already opened up its doors for 100 per cent ownership of businesses by foreigners and allowing them repatriation of capital and profit.

`There seems to be no value addition for Pakistani businesses to move over to India,` he said. However, Pakistan could benefit if it could attract big names in businesses from rich economies that India did not allow, and reroute the goods to India, Mr Ali said.

Industrialist Majyd Aziz, who is a former president of the Karachi Chamber of Commerce and Industry, said the Indian move was mainly aimed at its own benefit. He said the Reserve Bank of India had laid down a Pakistan-specific regulation that the Indian companies could not invest in Pakistan.

Another industrialist observed that allowing individuals and corporates to move capital out of Pakistan was scarcely a step to applaud when the country itself needed big foreign inflows to boost its economy and bolster external balances.

He observed that it should have been the other way round: Attracting Indian investment into Pakistan, rather than siphoning off already depleting investment from Pakistan to India.