The agreement followed a meeting in Beijing between Chinese Premier Li Keqiang and visiting Indian Prime Minister Manmohan Singh, who also had trade ties on the agenda as India seeks to gain greater access to Chinese markets and attract more inbound Chinese investment.
At present, trade between the two sides is heavily skewed in China's favour. With growing economies and a combined population of 2.5 billion, the two neighbours have set a target of $100 billion in bilateral trade by 2015, up from $61.5 billion last year.
The meeting Wednesday will "inject new momentum and vitality into the China-India relationship," Li said. Singh also was to meet with Chinese President Xi Jinping later Wednesday.
Relations between the nations are overshadowed by a half-century-old border dispute over which they fought a brief but bloody war in 1962. More than a dozen rounds of talks have failed to resolve the issue, and the two sides had a three-week standoff at their frontier earlier this year.
India said that Chinese soldiers launched incursions several kilometres (miles) across the Line of Actual Control at the Himalayan frontier between the sides in May, though China denied setting foot anywhere but on Chinese territory.
Seeking to avert such incidents, they signed the accord Wednesday to boost communication between the two sides about manoeuvrs along the frontier, jointly combat smuggling there and assist each other in locating people who may have strayed across the line.
"I am sure it will help to maintain peace, tranquility and stability in our border areas," Li said following the signing at a news conference, at which no questions from reporters were allowed.
China claims around 90,000 square kilometres (35,000 square miles) of land in India's northeastern state of Arunachal Pradesh, while India says China is occupying 38,000 square kilometres (15,000 square miles) of territory on the Aksai Chin plateau in the western Himalayas.