A Pakistani box-office hit will today become the first film from Pakistan to be released in cinemas across India since the two countries banned each other's movies after fighting their second war in 1965.

Khuda Kay Liye (In the Name of God), directed by Shoaib Mansoor, made its debut in India last night at a premiere in Bombay attended by leading lights of India's film and television industries. Set in Pakistan, Britain and the US, it tells the story of two Pakistani Muslims trying to preserve their religious beliefs after the September 11, 2001, attacks on the US.

The men are both pop musicians in the eastern Pakistani city of Lahore, but one falls under the influence of Islamic extremists while the other travels to the US and is detained as a terrorist suspect. Mansoor, who is from Lahore, said that he hoped the film would enhance Indians' understanding of their Muslim neighbours “at the same time as opening up the vast Indian market to future Pakistani films. I think it's very significant that this is happening after 43 years,” the 54-year-old director told The Times.

“India has a bigger Muslim population than Pakistan, but I hope the non-Muslim population goes too and I promise they will have a better understanding of Pakistan and the crisis Muslims are going through.”

The Pakistani Government outlawed all Indian films after the 1965 war over the disputed territory of Kashmir, which both sides claim. India countered by imposing a ban on Pakistani films. Relations have improved since the two sides began a peace process in 2004, and two years later Pakistani cinemas screened the first Indian film in Pakistan since the ban.

Bollywood films, although frowned on by many Muslim clerics, have also won a huge following in Pakistan via pirated copies on video and DVD, and, more recently, through private cable and satellite channels. But while India's film industry has become the world's largest, producing nearly 1,000 films each year, Pakistan produces about 40 annually, almost all low-budget pro- ductions in Punjabi or Pashtun.

Mr Mansoor, who wrote, directed and produced Khuda Kay Liye, said that he struggled to find funding for his Urdu-language film and then faced widespread international prejudice against Pakistani films. “I had to be a one-man army to get this far,” he said. He raised 50 million Pakistani rupees (£400,000) from private sponsors, and persuaded the film division of Geo TV, a private satellite television company, to distribute the film.

Released last year, it has made more than 70 million Pakistani rupees at the box office so far and won the special jury award at the 31st Cairo International Film Festival in December.

Shailendra Singh, managing director of Percept Pictures, which is distrubuting the film in India, said: “The big Bollywood directors are going to get a run for their money when they see this. I think this could open doors for Pakistani films in India.”

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