India said Friday it would open up to direct foreign investment from Pakistan in a deepening of commercial ties that could help propel a peace process between the nuclear-armed rivals.

The announcement by Trade Minister Anand Sharma, flanked by his Pakistani counterpart at a New Delhi news conference, came a few hours ahead of the opening of a second trading gate along the nations' heavily militarised border.

"India has taken an in-principle decision to allow Pakistani FDI (foreign direct investment) in India to deepen our economic engagement," Sharma said.

Sharma did not elaborate on the mechanics of the step, except to say "procedural requirements" were under discussion and it should be announced "soon."

The trade minister also said a deal to ease visa curbs on business travel between the South Asian neighbours was in the works and talks were underway to allow banks from both countries to open cross-border branches.

Dismantling trade barriers has emerged as a key instrument in normalising ties before the countries tackle thornier disputes such as their rival claims to Muslim-majority Kashmir that has sparked two of their three wars since 1947.

India warily resumed peace talks last year after suspending them in the wake of the 2008 Mumbai attacks by Pakistan-based militants that killed 166 people.

Pakistan's trade minister, Makhdoom Amin Fahim, was in New Delhi for discussions with Sharma and to attend a Pakistani commercial fair, the largest ever held on Indian soil.

The four-day exhibition showcases "contemporary" Pakistan's top jewellery, furniture and clothes designers.

Fahim later Friday travelled with Sharma for the opening of the trading post at the Attari-Wagah crossing between Lahore in Pakistan and the northern Indian city of Amritsar.

Fahim called the new crossing a "milestone" in relations.

Indian and Pakistan officials have been looking at the so-called "China option" as a model for future ties.

Beijing and New Delhi are pursuing stronger economic ties while resolving outstanding issues, such as a longstanding border dispute, in a "step-by-step" fashion.

The new $30-million trading post with a sprawling cargo terminal will see a four-fold increase in the number of trucks crossing the India-Pakistan border daily to 600. Up to now there has been only one crossing, creating bottlenecks.

Direct official two-way trade of $2.6 billion is heavily tilted in India's favour but unofficial trade, much of it sent through third nations, is estimated at up to $10 billion.

The trading post and Pakistan's granting of Most Favoured Nation status to India, ending strict curbs on what New Delhi can export across the border and due to come into effect by year end, could nearly triple bilateral trade to $8 billion in two years, Indian industry chamber Assocham says.

India granted Pakistan Most Favoured Nation status in the mid-1990s.

This is an "excellent chance to bind relations between the two nations with the strongest adhesive of all -- commerce," said India's Economic Times in an editorial.