India's Prime Minister Dr. Manmohan Singh announced this at the inauguration of the 3rd Pravasi Bharatiya Divas in Mumbai on January 7, 2005.
Here is an excerpt of the Prime Minister's speech on the occasion:
"I am happy to announce that we have decided to extend the facility of dual citizenship to all overseas Indians who migrated from India after 26th January 1950, as long as their home countries allow dual citizenship under their local laws. I do hope that a day will come when every single overseas Indian who wishes to secure Indian citizenship will actually be able to do so. I pledge to you that I will work in that direction.
Simplified Application Process
Our Government will also simplify the application forms for citizenship for
overseas Indians. A new user-friendly form combining the three forms prescribed
earlier has also been evolved and will be notified soon. Finally, we will simplify
the format of the certificate of registration of overseas citizens of India.
Various options, including the possibility of smart cards, are being considered.
I hope the security, operational and other aspects of issuing this document
will be completed soon without any further loss of time.
Benefits of the Facility
I have asked the concerned ministries to spell out the benefits of registering
overseas citizens so that there is clarity on our policy. I am aware that the
Government has taken far too much time in moving forward on this and we will
soon be able to complete the relevant procedures without any further loss of
time.
Psyche of the Migrant
Indian immigrants have gone to many countries to seek a livelihood in distant
lands, or in search of knowledge, skills, training and professional opportunities.
The psyche of the migrant is a complex one. I understand and appreciate this,
having myself migrated from my place of birth under difficult circumstances
and in times of crisis. As migrants in search of a home and a living, my family
and many other families like mine had to work harder. We had to have hope to
transform, to translate our living present to a productive future. This was
true of many migrant communities the world over.
Success Abroad
However, you, ladies and gentlemen, overseas Indians have succeeded, thanks
to the foundation in education and skills your home country gave you, and due
to the opportunities that your host country has given you. It is for this reason
that I have always been impressed by the optimism that characterizes the overseas
Indian.
Looking Back
It is also for this reason that you continue to look back at India with love,
affection and longing, though with an understandable degree of impatience with
our many bureaucratic procedures.
Economic Policies
I feel particularly happy that the economic policies we initiated at home in
the past decade have enabled us to connect with you more vigorously and to engage
you in meaningful ways in the reconstruction of our motherland. These policies
have significantly contributed to the emergence of India as a major global player
in the economic world. Together with the tremendous strides our country has
been making in the knowledge-based sector, there is no doubt that the 21st century
is going to be an Indian century.
Reform Process
I assure you that the reform process, which we started, may be carried forward
in the economic field and may be extended to administration and the polity so
that India's vast latent potential is unchained. There is much that you can
contribute, both through the inspiration of your example and through investment
in our future. Investment, as Lord Keynes once said, is an act of faith.
Keep the Faith
I invite you to have faith in India. We are going to take the future ahead.
Our Government is committed to renew the people's faith in good governance and
in a socially just and equitable process of development. We are committed to
strengthening the sinews of our plural, multi-cultural, multi-religious and
multi-ethnic democracy. We are committed to building an open society and an
open economy, based on just and equitable foundations.
Ministry of Overseas Indian Affairs
I am personally committed to a closer and wide-ranging interaction between India
and overseas Indians. That is why our Government created a new and separate
Ministry of Overseas Indian Affairs. This is a nodal ministry that will function
as a 'one-stop-shop' on all matters pertaining to overseas and non-resident
Indians. This is still a new Ministry and we will welcome suggestions on its
mandate and priorities. It is my intention to make this Ministry a friendly
and helping one in all matters relating to overseas Indians..."

