Amid rising hopes for an unprecedented opening up of trade between south Asia's two nuclear rivals, Indian drinkers are soon to enjoy Pakistani beer for the first time since the two countries gained independence.

Murree Brewery, a Raj-era oddity in an increasingly conservative Islamic country, says it will shortly start selling its lager in India, the historic market it lost access to when the subcontinent was partitioned in 1947.

The joint venture with an Indian beer maker represents a remarkable step as the countries try to overcome decades of hostility to increase the tiny amount of trade that trickles across their border.

"This is a huge opportunity for us, given the size of the Indian market," said Sabih-ur-Rehman, a former major who helps run the brewery and dreams of Murree beer becoming as internationally recognised as other Asian brands – such as Kingfisher (India), San Miguel (Philippines) and Singha (Thailand).

Despite the common history shared by the two billion people of Pakistan and India, business between the countries is pitiful. In 2009, only 1% of India's total trade was with Pakistan, which itself only sold 1.7% of its exports to its neighbour.

Pakistan's leaders believe trade could help to revive the country's failing economy, though it remains unpopular with some religious parties.

Optimists even claim better economic ties could ultimately help the two overcome their entrenched disputes over issues such as the control of Kashmir and the future of Afghanistan.

"Improvement in trade will mean greater interaction across the borders and great interaction inevitably leads to greater understanding," said Kamran Mirza, head of the Pakistan Business Council.

But a large number of trade barriers remain to be overcome between the two nations, which have fought three wars against each other.

There is just one customs post along the 1,800-mile border, at the heavily militarised border post of Wagah, between Lahore and the Indian city of Amritsar. The small number of goods on either side of the border can take days or weeks to clear customs.

Each evening at sunset, in a daily reminder of the ongoing military standoff, soldiers on both sides of the border stage an elaborate flag ceremony involving a lot of foot stamping and shouting. It culminates, literally and figuratively, in the two countries slamming their respective doors in each others' faces.

But in mid-April India opened a cavernous customs facility on its side of the border in the village of Wagah, which is supposed to massively increase the amount of goods that can be processed daily. Officials say it should triple the value of trade between the two countries to $8bn within three years.

The opening was soon followed by a delegation of Indian industrialists, who visited Lahore preaching the need for open borders.

Pakistan is also committed to getting rid of a host of restrictions and tariffs after it gave India most favoured nation status last year.

"A lot of people in the city are anticipating a boom in this city when trade really starts taking off," said Ashaar Rehman, the Lahore resident editor of the Dawn newspaper. "There will have to be many more hotels and the price of land will certainly go up."

Although some businesses, including rickshaw manufacturers, are worried they will lose trade because of a flood of superior Indian wares, Pakistan's cement and textile industries believe that there is strong demand for their goods in India.

In April, retailers exhibiting at the Pakistani Lifestyle exhibition in Delhi were mobbed by eager Indian shoppers.

Theoretically, Murree Brewery has much to gain from trade liberalisation. Indians drank about 2bn litres of beer last year and the market is growing as an increasingly affluent middle-class looks for unusual beer brands.

In Pakistan, people ordering beer via room service in smart hotels have to sign a form declaring it is "for medicinal use only". Officially, only Christian and Hindu Pakistanis (about 3% of the population) are legally allowed to drink. "But many of the other 97% also drink," Sabih-ur-Rehman cheerfully points out.

In Karachi, Pakistan's biggest city, no questions are asked of customers when they go to legal "wine shops" – which are often little more than grated holes in the walls in dingy back streets.

Even though Murree has tripled production since 1995, many Pakistanis turn their noses up at the company's offerings, which also includes gin, vodka and a prize-winning 21-year-old single malt whisky.

"We regard it as an insult to serve Murree to guests," said one of Islamabad's politicos during a recent gathering – lubricated with Carlsberg and Johnny Walker Black Label.

Unfortunately, the prized western imports are increasingly hard to come by. Bootleggers say the six-month ban on Nato supplies has led to soaring prices as much of Pakistan's black market supplies come from consignments intended for embassies in Kabul.

The Pakistani government has recently scrapped a ban on exporting alcohol, but Murree's lager will, for the time being, be brewed under licence in India.

The joint venture with an Indian brewery comes as India also announced that it would lift its longstanding ban on direct foreign investment from Pakistan.

"The Indians are going to really take to this," said Sabih-ur-Rehman. "We are one of the most historic brands in the world and they still remember us in India."

Eat, drink and be Murree

Murree still makes its beer in one of the company's original 19th-century breweries in Rawalpindi, just a stone's throw from the headquarters of the country's powerful army chief. When Pervez Musharraf was in power, regular boxloads of Murree lager would be dropped off for the general.

The company, which also sells soft drinks and processed food, was founded in 1860 and was part of a network of breweries across the subcontinent established to satisfy the parched throats of the soldiers of the British Raj.

In the 1970s, the hardline rule of Zia ul-Haq saw Murree closed down for two years.

Nonetheless, the company, which is listed on the Karachi stock exchange, remains one of the country's biggest enterprises. It is also making its second concerted effort to break into the UK market with lager brewed under licence in the Czech Republic.

Murree has a proud history of punning slogans. In the nineteenth-century it used the catchline "Eat, drink and be Murree." Its latest foray into Britain is being promoted with the appeal to "Have a Murree with your curry."