In a move to radically change the dynamics of economic ties with Pakistan, India is considering a proposal to amend the rules in the Foreign Exchange Management Act (FEMA) to allow investments from Pakistan.

The Commerce Ministry has sent a proposal in this regard to the Finance Ministry which was looking into the proposal seriously, a senior Indian official said today.

At present, India does not permit FDI from Pakistan. The business community of Pakistan has been asking the Indian Government to amend the rules so that it could also invest in India. However, the proposal has been drawing opposition from certain powerful sections in India, especially in view of security concerns. Pakistan does not have any restrictions on allowing Indian investments. However, there has been no investment by India in Iran so far.

The official said the Finance Ministry was holding talks with various stake holders, including the Union Home Ministry.

He explained that there was no need to amend the FEMA Act and only rules were required to be changed. This could be done through an executive order. “Once the rules are changed, investments can start flowing in through the FIPB (Foreign Investment Promotion Board) route into various sectors in which the FDI is allowed,” he added. The government had earlier allowed investments from Bangladesh through the FIPB route.

The representatives of the India-Pakistan CEOs’ Forum could decide in which sectors Pakistani investments could flow, said the official, who did not wish to be identified.

Commerce Minister Anand Sharma, on a visit to Pakistan, had yesterday stated that he had discussed with his Pakistani counterpart the issue of investments.

Business groups from India and Pakistan have been urging their respective governments to move speedily on the issue. There are proposals for joint ventures too.