But Japan -- the only country to have suffered atomic bombings, and a key voice in global denuclearisation efforts -- is concerned because nuclear-armed India has not signed the Nuclear Non-Proliferation Treaty.
Japan's Foreign Minister Seiji Maehara and Indian Commerce Minister Anand Sharma signed the deal in Tokyo, hoping it will boost two-way trade which totalled 900 billion yen ($10.7 billion) in 2009 -- less than one percent of Japan's total foreign trade.
"We have no doubt in our minds that this will usher in a new era of economic engagement, which will bring development, innovation and also prosperity in both societies," said the Indian commerce minister.
The trade and investment agreement, approved in principle by both countries' leaders last year, aims to open new markets for Japan as its population ages and shrinks, and to fuel the rapid growth of emerging power India.
It will help Japanese auto makers such as Suzuki by lifting tariffs on car parts shipped to its factories