One of the main uncertainties is the cost of building the infrastructure needed to connect the two countries' power grids.

Pakistan says if it is to make a large investment it would want to be sure that electricity exports would continue for many years.

Kahsmir: The main stumbling block

Traditionally India and Pakistan have very limited trade relations.

But our Islamabad correspondent Owen Bennett-Jones says it seems both sides see mutual advantage in coming to a deal over electricity.

India, which is sending a seven strong delegation from the power ministry to the talks, has a large shortfall of electricity.

The meeting follows discussions between the two countries' prime ministers in New York in September.

Pakistani officials say a surplus of up to 2,500 megawatts could be sold to India.

Although talks are at an early stage, they have said they would like to sell the electricity as soon as possible.

With foreign exchange reserves down to around $450m, our correspondent says the country needs all the hard currency it can get.

Crippling financial problems

Most of the electricity surplus in Pakistan is being produced by independent power producers.

Pakistan says its power sector is in serious financial difficulties because it is committed to buying the surplus.

The state-owned Water and Power Development Authority, with current losses totalling $1bn, is close to bankruptcy, according to officials.

But the Pakistani Government has turned down a proposal by the independent producers to allow them to sell directly to India.

The talks about the possible trade in electricity come as the two countries are also trying to agree on a coach service between Lahore and Delhi.

Islamabad says officials from the two sides will discuss the link in early December.

But our correspondent says initiatives such as these are likely to be controversial in Pakistan.

The country has in the past emphasised the importance of finding a settlement to the row over the disputed territory of Kashmir before moving on to other issues.