Rangia, Assam, September 23, 2005 ( IRNA)

India on Thursday said relations with China would touch a new high once border trading between the two countries through the famed Silk Road resumes next month.

"We are confident that once trading through the Nathu La pass begins, relations between the two countries would further improve.

Trading would definitely benefit people on both sides of the border and this could be termed as a strategic partnership," India's Defence Minister Pranab Mukherjee told journalists at an army base in Rangia, 60 kilometers west of Guwahati, the main city of the northeastern state of Assam.

The world's two most populous countries are working to set up their first direct trade link since a 1962 border war by reopening a section of the famed Silk Road.

A symbolic ceremony to mark the resumption of traditional trade is being tentatively planned on October 2 at the 15,000-feet (4,545 metre) Nathu La pass on the border between India's Sikkim state and China's Tibet region.

"Border trade between India and China now stands at $13 million and it is expected to grow to about $ 20 million in the next couple of years," the minister said.

Mukherjee said relations between the two countries have improved.

"Both the countries have agreed to sort out any problems through dialogues. There would be more bilateral talks now," the minister said.

Beijing had in 2003 gave up its territorial claim over the Indian state of Sikkim but was still holding on to its age old stand that a vast stretch of Arunachal Pradesh belongs to them.

The mountainous state of Arunachal Pradesh shares a 1,030 kilometer (650-mile) unfenced border with China.

The Sino-India border along Arunachal Pradesh is separated by the McMohan Line, an imaginary border which is now known as the Line of Actual Control (LAC).

India and China fought a bitter border war in 1962, with Chinese troops advancing deep into Arunachal Pradesh and inflicting heavy casualties on federal troops.

The border dispute with China was inherited by India from British colonial rulers, who hosted a 1914 conference with the Tibetan and Chinese governments that set the border in what is now Arunachal Pradesh.

China has never recognized the 1914 boundary, known as the McMahon Line, and claims 90,000 square kilometers (34,750 square miles) -- nearly all -- of Arunachal Pradesh.

India also accuses China of occupying 8,000 square kilometers (14,670 square miles) in Kashmir.

After the 1962 Sino-Indian War, tension flared up once again in 1986 with Indian and Chinese forces clashing in the Sumdorong Chu valley of Arunachal Pradesh.

The Chinese troops have reportedly constructed a helipad in the valley leading to fresh skirmish along the borders during that time.