Kashmir Singh, 61, spent most of his time in Pakistan on death row. He was arrested in the Pakistani city of Rawalpindi at the age of 26 and sentenced to death by a military court.
Pakistani Human Rights Minister Ansar Burney played a key role in securing the prisoner's release, persuading President Pervez Musharraf to grant him clemency.
After his release, Singh crossed the border and was greeted by his wife and sons, who were young children at the time of his arrest.
Speaking to journalists, the now grey-bearded and bald Singh, who worked as a policeman and later as a businessman, rejected the accusations: "Yes, I was accused of espionage and smuggling. But I did not do anything of that sort and they found nothing on me when they arrested me," he said, adding he had no "regrets for anything that happened" and bore no grudge against Pakistan.
Pakistan and India have maintained consistently frosty relations since their independence from Britain in 1947. The countries have fought three wars and arrested hundreds of each other's citizens on spying charges, many of whom have been held in prisons for decades with no communication with their families.
According to various reports, there are about 600 Indian prisoners in Pakistani jails and around 200 Pakistanis detained in India.
Burney said the release was a goodwill gesture and not a "bargain," which he hoped India would follow.
In 2004, a bilateral peace process was launched, and the two countries have recently performed a series of prisoner exchanges.
