MUMBAI: After a gap of about four decades, Pakistan has lifted the ban on Indian films. But there is a condition attached: for every Hindi film screened in Pakistan, the doors have to open in India for an Urdu movie.

Khuda Ke Liye is the first Pakistani film to be released in India.

In 1968, the release of Indian films in Pakistani cinemas was banned and Pakistan lost one of its competitors. The net result was a loss of large business circuit and isolation of Pakistani cinema industry for years to come.

Produced and directed by Shoaib Mansoor, Khuda Ke Liye is a film about Muslims in a post-9/11 world. The film is slated to open in India on 4 April 2008, making it the first ever Pakistani film to be released in Indian theatres by Percept Picture Company and music by Sony BMG.

Pakistan and India might have their long-held differences, but Pakistani moviegoers prefer Bollywood productions to those of their own filmmakers. As a result, Pakistani producers say their industry is in critical condition, and unless the government steps in, it could disappear altogether.

The opening of dialogue and political doors to establish new ties and improve bilateral relations will promote cross border co-production possibilities that can hugely benefit Pakistani film industry by eyeing India as new potential market to launch its films.

Khuda Ke Liye, with India's Naseeruddin Shah also in a prominent role, is the latest export from Pakistan to Bollywood adding on to the ever-increasing list of entertainment goods imported from Pakistan such as singers, musicians, actors and now films.

As compared to India's film production of over 1,000 movies in a year, Pakistan's film industry produced just 40 movies in 2006, a fifth of what it turned out during its heyday in the 1970s. Back then, there were more than 1,000 movie theatres throughout the country. Today, there are only around 200, and not one in the capital Islamabad.

In the 1930s when Pakistan and India were still united under British rule, there were two competing centres of the film industry - Lahore, "Lollywood" in Pakistan, and Bombay (Mumbai), the home of India's fabulously successful ''Bollywood'' filmmakers.

These days, of course, there is little question as to who won the competition. Bollywood is not only big, but it is the world's biggest, producing more films per year than any of its competitors including the US. It is hard for Pakistan to compete.

The thawing relations look set to go both ways and both countries are working hard on a sweeping peace process.