The European Union and India have agreed to negotiate a bilateral deal on trade and investment.
The European Union and India are keen to boost trade
The two sides will start talks over the content of the "broad-based" agreement which is expected to scrap many tariffs on goods and services.
Speaking after a summit in Helsinki, Indian Prime Minister Manmohan Singh said that agreeing to thrash out details of the deal was "significant".
However he refused to call the pact a "free trade deal".
The agreement would aim to eliminate 90% of tariffs within seven years of the agreement coming into force, he added.
'Basket for commerce'
Trade between India and the EU is currently about 40 billion euros ($50bn; £27bn) each year.
Goods, services, investment, trade facilitation, commerce and industry would all be covered said Indian trade minister Kamal Nath.
He added the deal also opened up the prospect of agricultural exports to Europe, as well as goods such as leather, gems and chemicals.
"As EU is the largest trading partner of India, the agreement will create a large basket for commerce," Mr Nath said.
EU Trade Commissioner Peter Mandelson has called for a "challenging timetable" for full agreement on a trade deal between the EU and India by 2009.
He said: "We will each gain, but so too will the rest of the world because any agreement between us will set new standards for openness and global trade rule."
As well as agreeing proposals for a pact on trade and investment, the leaders also pledged to tackle climate change by looking to low-carbon energy, and reiterated a commitment to tackling terrorism.
Broader World Trade Organization talks have so far failed to bring about a deal on liberalizing global trade.
India's economy is booming
India is keen to nurture greater foreign investment, while the 25-member EU wants to capitalise on the sub-continent's booming economy.
India's prime minister has said his country's infrastructure sector alone has the capacity to absorb $320bn in investment over the next five years.
"Since the reforms process started, there has been a sea change in the climate for investment and we are committed to improve it year after year," Mr Singh earlier told EU business leaders.
However, analysts have warned that differences between EU member states on how far the trading bloc should go on any economic concessions with India could hamper attempts at reaching a deal.