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The understanding was reached between the two leaders during the two-day informal summit which concluded today, they said.
As per the understanding, officials of both sides will identify the project in follow up discussions and work out the modalities.
This will be the first such project in the war-ravaged country by India and China.
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China while trying to expand its influence in Kabul has tacitly backed Pakistan, which has been accused by Afghanistan and the US of backing the Taliban.
They accuse Pakistan of proving safe havens to terror groups which carry out attacks in Afghanistan, destabilising any attempts to restore peace.
China for the first time held a trilateral meeting with the foreign ministers of Pakistan and Afghanistan in December last in Beijing to narrow down the differences between the two countries.
China had also announced plans to extend its controversial China-Pakistan Economic Corridor (CPEC) to Afghanistan at the meeting.