The decision was taken at a meeting here between Prime Minister Manmohan Singh and his Japanese counterpart Junichiro Koizumi, secretary in the external affairs ministry Veena Sikri told reporters here, adding its composition would be carefully decided.
Officials said the group was likely to be set up in early 2005 and was expected to have public and private sector officials to handle ways to increase amount of bilateral trade and investment.
Mr Koizumi said the proposal to have a joint grouping of India, Japan, South Korea and China for economic co-operation should be pursued.
The issue of India and Singapore signing an economic co-operation agreement covering free trade came up for discussion during Dr Singhs meeting with the Singapore PM.
The most important aspect of the interaction was the ongoing negotiations between the two sides on giving a final shape to the economic co-operation agreement, Ms Sikri said, adding the meeting was held in enormous cordiality.
This appears to be progressing very satisfactorily and the negotiations could be over in two weeks and the agreement could be signed sometime next year, she said.