Shah, who is performing in the play "Ismat Apa kay naam", said there could be nothing better than film collaboration between the two countries.
The actor, here on the invitation of non-government organisation The Citizens Foundation, said the screening of Indian films in Pakistan would benefit Pakistani cinema, as it would promote "healthy competition". The Pakistani film industry would become active with the screening of Indian movies.
He said a number of Hollywood movies were being screened in India but it had not affected the Indian film industry.
Clad in a light-yellow kurta and white trousers, the celebrated actor candidly spoke to the media, despite being indisposed by a painful back spasm, the Daily Times newspaper reported. A performance of the play is being held in Lahore Saturday.
Shah said that he had chosen to perform Chughtai's plays in the past because she had penned "some beautiful stories". "Her stories are very expressive. It makes one feel as if in conversation with the writer."
Chughtai has to her credit a "provocative body of work, which astounded and shocked her contemporaries", he said. "As one of the earliest feminist writers in the country, her contribution to the virtual renaissance in Urdu literature in the 40s and 50s is well-known."
Chugtai is known as a controversial writer for having dwelt on lesbianism early in her writing career.
"Ismat Apa's observations about the nature of human relationships are as poignant and ring as true today as they did when she first wrote and enraged hordes of male chauvinists," he said.
Shah also said he was struck by the quality of acting and writing of certain plays on Pakistan Television. Of his own work, Shah said that he had mostly performed plays by Bernard Shaw and a few by William Shakespeare during his career. However, he said that his most successful experiments in theatre had been Chughtai's plays. He said that there was "a dearth of original natak (theatre) in India".
In response to a question, Shah said that he had no apprehensions about his visit to Pakistan. He has been to Pakistan once before, to act in Shoaib Mansoor's film "Khuda Key Liye".
He said that he never publicised his visits because he was not fond of interviews and wanted to focus attention on the production at hand.
Shah, who is also directing the play, said that it was an amalgam of three stories by Chughtai - "Mughal Bacha", "Chhui Mui" and "Gharwaali". The cast includes his wife Ratna Patak and daughter Heeba Shah. Patak is a well known stage and film actress.
Shah said that his transfer from theatre to commercial cinema in the 70s had been "an accident of time", and had embroiled him in an ongoing debate at the time. He said that he was not acting in any project at the moment, but had two productions lined up - a Hindi language French production "Valley of Flowers", and another film "Parzania".
The play will be performed in Lahore on Sunday too and in Islamabad and Karachi on May 2 and 4. All the proceeds from the play will go to charity.