After almost a decade of dilly-dallying, India on Friday conveyed to Iran its intent to invest in the development of the strategically-important Chabahar port in Iran.
This investment is seen as a way to counter the Chinese-managed Gwadar port in southwestern Pakistan.
The two sides have also pushed for transit pact between India, Iran and Afghanistan, which would help India get access to the land-locked and resource-rich countries.
"We are going ahead with the Chabahar project. Cabinet has already cleared it", external affairs minister Salman Khurshid, who held a series of meeting with Iranian leadership said here.
Following up on the decision, a high-level delegation headed by union shipping secretary will be visiting Tehran to fine-tune the plans. India initially plans to invest $100 million.
"The two sides discussed bilateral and regional issues of mutual interest. They discussed Indian participation in Chabahar Port project which will provide connectivity with Afghanistan and will give an impetus to Afghanistan's economic development," the joint statement, issued after the meeting, said.
A host of problems, including the West's antagonism toward Iran, chill in India-Iran ties after New Delhi voted against Tehran at the International Atomic Energy Agency, had come in the way of the project for many years.
Chabahar is an important Iranian port along the Makaran coast and offers Iran easy access to the Indian Ocean and it is closer to India than the existing Bandar Abbas port. India, Iran and Afghanistan have already signed an agreement to give Indian goods, heading for Central Asia and Afghanistan, preferential treatment and tariff reductions at Chabahar.
According to technical studies, the next phase includes construction of a multi-purpose cargo berth and two container terminals. Chabahar gained strategic importance during Iran-Iraq war in the 1980s.
Gwadar has strategic and economic importance for China as around 60% of its crude oil comes from the Gulf countries that are close to Gwadar.