China is India's biggest trading partner, with bilateral trade, heavily skewed in China's favor, crossing $75 billion in 2011.
Analysts feel linking a troop withdrawal to continued trade could work.
"The Chinese have to learn that such aggression cannot be delinked from trade," said Dutta.
Though the two countries have held 15 rounds of talks, their border disputes remain unresolved. India says China is occupying 38,000 square kilometers (15,000 square miles) in the Aksai Chin plateau in the western Himalayas, while China claims around 90,000 square kilometers (35,000 square miles) in India's northeastern state of Arunachal Pradesh.
Analysts said they were baffled by Beijing's motives, since its actions could force India to move closer to Beijing's biggest rival, the United States.
"The Chinese for some reason don't seem able to see that," said Joshi.
China's aggressive posture could also force India to accelerate its own military modernization program, analysts said.
The stand-off may eventually be resolved diplomatically, "but what it really shows is the PLA's contempt for our military capability," former Indian navy chief, Sushil Kumar, wrote in The Indian Express newspaper.
It could also push the government to agree to the army's longstanding demand to create its own strike corps on the border.
"By needling the Indians, they are helping us to accelerate our modernization," Joshi said.
