FEMA Set To Be Tweaked To Allow FDI From Pakistan With Riders

New Delhi: India is close to opening all domestic sectors except a few like defence, atomic energy and space to foreign direct investment (FDI) from Pakistan, a move that could help build confidence in normalising cross-border trade.
Finance minister Pranab Mukherjee is said to have approved a commerce ministry proposal to amend rules under the Foreign Exchange Management Act (Fema), 1999, which bars all forms of investment from Pakistan. The move could lead to the Reserve Bank of India notifying the changes so that the department of industrial policy and promotion (DIPP) could issue a press note allowing such investments, experts said.
Fema, which took effect in 2000, governs all foreign exchange transactions in India and specifically bars transactions from Pakistan. “A non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI policy,” says Fema.
FDI from Pakistan may debut as a special dispensation similar to FDI from Bangladesh. Currently, citizens of Bangladesh or entities incorporated there can invest only under the government route.
When asked, a finance ministry official said: “FDI from Pakistan will become conditional. It will be approved on a case-to-case basis in consultation with other ministries.” However, all proposals will be routed through the foreign investment promotion board to maintain an extra level of check and to address security concerns, the official said.
Trade experts see the move more as a step to strengthen trade ties and not necessarily to attract major investments.
“Allowing FDI from Pakistan is expected to build pressure on its government. The move may help further liberalise trade between the two nations and help a lot of Indian companies who see business potential in Pakistan,” said an analyst.
Trade between India and Pakistan was $2.7 billion in 2010-11, but there are no two-way investments so far.Pakistanis yet to to grant the most favoured nation status to India. The decision on easing FDI norms follows the recent visit of a business delegation from India to Pakistan led by commerce minister Anand Sharma.
According to Mian Nasser Hyatt Maggo of Al-riaz Agencies and the former president of the Karachi Chamber of Commerce and Industry, India and Pakistan must open their borders for trade and investment for both sides to thrive. “We have common interests and common agenda in many sectors; then why should we allow any third country to take advantage of the volatile situation and exploit our sentiments. We should become the big economic powers of Asia,’’ he said.
Recently, the Pakistani Cabinet approved a proposal to ease trade with India by switching to a negative list based import regime (though the negative list was of 1,200 items as against a proposed negative list of 636 accommodating concerns of certain sectors such as textiles). It was followed up with the promise of granting India the MFN trade status by the year-end, though Ismalabad claimed that several concerns remained over non-tariff barriers faced by Pakistani exporters.