The nine-day fair showcases Pakistani handicrafts, fashion, onyx products, glassware, consumer goods, hi-tech electronics and glitzy motorbikes.

The fair followed a decision last month by the rivals to draw up a peace roadmap after they nearly went to war against each other for the fourth time in 2002.

Azim Premji, chairman of Wipro, India's third-largest software services company by sales, told the fair the governments of the two countries needed to realise bilateral business was the "grease" that bettered ties.

"Official bilateral trade is merely 250 million dollars, another one billion dollars takes place through third countries and there's potential to enhance it to four to six billion dollars in the short-term," the billionaire said.

The fair coincided with the start of a relaxed visa system for Indian sports fans seeking to attend this month the first Indian cricket series to be held on Pakistani soil in 15 years.

But an Islamic separatist militant raid in disputed Indian Kashmir that left six dead Wednesday reminded participants many outstanding issues remained to be settled between the nuclear rivals before relations can be normalised.

The two countries have fought two of their three wars over the divided Himalayan territory of Kashmir that both claim.

"Hence we have Plan A, B and C in case things go wrong again," said Riyaz Mukadam, one of the 385 exhibitors visiting India to take advantage of new climate of relaxed tensions many hope will replace five decades of hostility.

India's Privatisation Minister Arun Shourie said official-level business would end clandestine trading valued at almost two billion dollars annually.

"Many of the (tax) barriers are meaningless as contraband trading is 10 times the size of our formal trade, which is damaging and encourages the wrong types of enterprise and people," he said.

India and Pakistan endorsed South Asian Free Trade Agreement (Safta) among the seven South Asian nations. But while India has granted Pakistan most favoured nation trading status, Islamabad has yet to reciprocate.

"SAFTA is a great landmark because the great benefit of trade is competition," Shourie said.