UNDERLYING PROBLEMS

Devyani Khobragade, India's deputy consul general, attends the India Studies Stony Brook University fundraiser event in Long Island, New York in this December 8, 2013 file photo. [Photo/Agencies]

Khobragade's departure would remove the focus of current friction between New Delhi and Washington, but it is unclear how long it will take the anger to subside in the run-up to national elections in India in May.

The case has exposed underlying problems in a bilateral relationship that has failed to live up to its billing by President Barack Obama in 2010 as "a defining partnership for the 21st Century."

Critics accuse Obama of failing to pay sufficient attention to ties with a country viewed as a key strategic counterbalance to China and as an engine to boost the US economy, while American hopes of building a more robust business relationship with India have run into bureaucratic hurdles.

Frustration has grown among the US corporate lobby. Indian sourcing rules for retail, information technology, medicine and clean energy products are contentious and US firms complain about "unfair" imports from India of everything from shrimp to steel pipes. In June, more than 170 US lawmakers signed a letter to Obama about Indian policies they said threatened US jobs.

Daniel Markey, senior fellow for India, Pakistan and South Asia at the Council on Foreign Relations, said the Khobragade case made it appear the Obama administration had taken its eye off the ball on the relationship with India.

"The question is why this wasn't managed in a more sophisticated or subtle way, because things can be managed more effectively. This was always going to be an issue, but it could have been resolved more rapidly with less fanfare."

Speaking at a seminar on Thursday, Ron Somers, president of the US-India Business Council blamed "bumbling on both sides" for the Khobragade affair.

"We have to do some thinking on this side as to what has there been in the way of frustration that allowed this incident to provoke and spill over as it has," he said.

"We really need now to be building trust and taking an introspective look at whether we really mean what we say when we talk about strategic partnership and how do we get there."