Islamabad: After dilly-dallying for several years, Pakistan on Wednesday granted the Most Favoured Nation (MFN) status to India in a significant step in improving bilateral ties and boosting two-way trade currently standing at USD 2.6 billion.

"After a lengthy discussion and a briefing by the Commerce Secretary, the Cabinet unanimously approved the Commerce Ministry's summary to grant Most Favoured Nation status to India," Information Minister Firdous Ashiq Awan told a news conference.

The MFN status, which means that Pakistan will give trade treatment to India at par with its other partners, is likely to boost the bilateral economic ties. India had granted the MFN status to Pakistan way back in 1996. In 2010-11, India-Pakistan trade stood at USD 2.6 billion.

Pakistan's move to grant MFN status to India comes ahead of the November 10-11 SAARC Summit in Maldives, where the Prime Ministers of the two countries are expected to meet.

All stakeholders in Pakistan, including the military, were "on board" for the decision to grant MFN status to India, Awan said.

"The decision will lead to economic benefits and it is in the national interest," she said, adding that granting the MFN status to India would not in any way affect Pakistan's stand on the Kashmir issue.

During the meeting of the Cabinet chaired by Prime Minister Yousuf Raza Gilani, several ministers raised concerns on issues like Kashmir which were discussed at length, Awan said.

"Some Cabinet members had concerns about Kashmir, political issues and defence and strategic relations," she said in her opening remarks.

"Others raised issues related to national sovereignty and Pakistan's territorial integrity. The Cabinet's decision will cause no harm to the Kashmir cause," she said.

"Trade (with India) is a separate issue. It is a most important priority for Pakistan to continue its support for the Kashmir issue and the movement (for the right to self-determination)," Awan, a senior leader of the ruling Pakistan People's Party, said.

Awan pointed out that China, one of Pakistan's closest allies, had bolstered its trade relations with India despite territorial disputes between the two countries.

"We cannot live in regional isolation," she said.

Responding to a question on whether the Kashmiri leadership had been consulted on the decision to grant MFN status to India, Awan said the two parts of Kashmir were already conducting trade across the Line of Control.

Bus services too were operating across the LoC, she said.

Awan said Commerce Minister Makhdoom Amin Fahim had briefed the Cabinet about how he had engaged the Kashmiri leadership on the MFN issue.

After India granted the MFN status to it in 1996, Pakistan had held out on reciprocating the move, largely due to opposition from religious groups and some political parties which felt that extending the MFN status to New Delhi would affect Pakistan's stand on the Kashmir issue.

Pak decision ‘momentous’: Indian industry

Pakistan's decision to grant the much sought-after MFN status to India can lead to multi-fold increase in the bilateral trade of USD 2.6 billion, industry said on Wednesday.

Describing the decision by the Pakistan Cabinet as "momentous", the Indian industry said the move also "augurs well for discussions" at the forthcoming SAARC Summit at Maldives, beginning November 10.

The Most Favoured Nation (MFN) status would mean that Pakistan will give trade treatment to India at par with its other economic partners.

It would also give a boost to the bilateral trade which can go up to USD 8 billion in the next five years, industry body CII said.

According to Assocham, the bilateral trade could go up to USD 6 billion by 2014.

"The move could also lead to negotiations on opening of the mutual investment," Assocham Secretary General D S Rawat said.

The Chamber is sending a high level delegation, comprising well-known industry leaders like K P Singh of DLF and Sajjan Jindal of JSW to Pakistan later this month.

FICCI Secretary General Rajiv Kumar said "the stage is now set for direct exports to Pakistan. Earlier, India used to export to Pakistan via Dubai (third country exports)."

Kumar said with the grant of MFN status to India by Pakistan, the reciprocal trade barriers will disappear.

India had granted Pakistan the MFN status way back in 1996 without getting a reciprocal response.