India has reversed its ban on foreign investment from Pakistan in a move designed to build goodwill amid a renewed push for a peace settlement between the nuclear-armed South Asian neighbours.
"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 Indian commerce ministry on Wednesday.
However, no such investments can be made in defence, space or atomic energy, the ministry said.
India and Pakistan, which have fought three wars since independence, are channeling their peace efforts into "trade diplomacy".
"We welcome this decision,", Pakistani foreign ministry spokesman Moazzam Khan told the AFP news agency.
"It will definitely benefit Pakistani investors and industrialists. We hope this decision will be fruitful for the people of both countries."
Pakistani businessmen also welcomed the move.
"We do appreciate this action by the government of India, but what will be more interesting for me is when the Indian authorities lift its ban on Indian investors investing in Pakistan," said Majyd Aziz, involved in the import and
export of minerals and in shipping.
"For a better economic future in South Asia, it will be a huge step when businessmen from both the countries can freely invest in each other's country."
India's decision to accept foreign direct investment from Pakistan was taken in April when the trade ministers of the South Asian rivals met in New Delhi.
They also discussed ways to ease visa curbs on business travel and the possibility of allowing banks from both countries to open cross-border branches.
The improved relations between the rivals stem from Pakistan's decision to grant India "Most Favoured Nation [MFN]" status by year-end, meaning Indian exports will be treated the same as those from other nations.
MFN status will mean India can export 6,800 items to Pakistan, up from around 2,000 at present, and the countries aim to lift bilateral trade to $6bn within three years, officials have said.
The two nations have voiced hopes that boosting trade can help peace talks which India warily resumed last year after suspending them after the 2008 attack by gunmen on Mumbai that killed 166 people. India blamed the attack on Pakistan-based Lashkar-e-Taiba fighters.