"Two young men in black denims, black T-shirts and wearing helmets drove a motorcycle to the market and the pillion rider dropped a polythene bag containing the bomb," H S Dhaliwal, deputy police commissioner, told reporters.
"A 13-year-old boy tried to help and return the bag to the riders but they sped away at high speed and the bag exploded, killing the child instantly."
Rajan Bhagat, a police spokesman, said police were investigating the nature of the explosive and described it as "a low-intensity blast".
Television footage showed blood and broken glass littering the streets.
The Press Trust of India news agency said that several of the injured had been admitted to hospital in critical condition.
"The government will have to take stern measures to put an end to this type of activities and acts of terror," Pranab Mukherjee, India's foreign minister, told reporters
The blast came just two weeks after an apparently co-ordinated series of bombings in the city killed at least 21 people and wounded more than 100 others.
The attack was claimed by a group calling itself the Indian Mujahidin, which also said it was behind blasts in Jaipur, Ahmedabad and Bangalore.
There was no immediate claim of responsibility for Saturday's blast.