India's Trade Minister Anand Sharma and his Pakistani counterpart Makhdoom Amin Fahim (R) attend the India-Pakistan Business Conclave, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), in New Delhi, September 29, 2011. — Photo by Reuters

NEW DELHI: Pakistan has backtracked since announcing earlier this week that it had granted India the status of Most Favoured Nation (MFN) in trade, a senior Indian government source said on Friday.

The MFN status would help normalise trade relations between the two states by ending heavy restrictions on what India is allowed to export across the border. New Delhi granted its neighbour such a status in the mid-nineties.

Business and political lobbies in Pakistan appear to have forced the move to be put on hold, leaving India to “wait and watch” as to when the process would resume, the source told Reuters on condition of anonymity.

“From the initial announcement of an unconditional grant of an MFN, there appears to be a clear backtrack,” the source said.

Trade has long been tied to political issues between the hostile neighbours, who have fought three wars since independence from Britain in 1947.

Wednesday’s announcement was trumpeted on both sides as a milestone in improving fragile relations that were shattered by attacks by militants in Mumbai in 2008.

Lasting peace between the two countries is seen as key to stability in the South Asian region and as help a troubled transition in Afghanistan as Nato-led forces plan their military withdrawal from that country.

India and Pakistan may be home to some 1.4 billion people but bilateral trade flows are paltry — a legacy of mistrust between the neighbours.

The hope is that an increase in trade will feed into wider trust between the two countries and help the rivals resolve major flashpoints like the disputed Kashmir region, although a solution to this problem has proved intractable for decades.

The two sides have also pledged to liberalise restrictions on business visas, curb non-tariff barriers and bolster trade on their land border. As things stand, exporters are forced to route many goods via third parties such as Dubai, slowing delivery times and upping costs.

Less than one per cent of India’s merchandise exports are sold to Pakistan, in terms of dollar value, but in September a joint statement pledged to double bilateral trade flows within three years to about $6 billion.