"As you would say in the markets, the fundamentals are good, it's the sentiment that needs improving," Subrahmanyam Jaishankar told The Associated Press in an interview.
India and the U.S. are holding preliminary discussions to resolve differing interpretations of diplomatic immunity following the spat over Devyani Khobragade, who was expelled from the United States this month after she was indicted on accusations of exploiting her housekeeper.
The U.S. and India, the world's largest democracies, have forged closer economic and defense ties in the past decade, but relations took a tumble because of Indian outrage over the treatment of Khobragade, who was her nation's deputy consul general in New York. She was strip-searched after her Dec. 13 arrest, which U.S. marshals say is common practice for a suspect taken into custody, but was viewed in India as unnecessarily humiliating.
India unleashed a steady stream of retaliatory measures against U.S. diplomats, including restrictions at the American Center in New Delhi and revoking new ID cards for some diplomats. Key to the dispute was Washington and Delhi's differing interpretations of what type of immunity was due to Khobragade. U.S. officials argued that as a consular official, she was immune from prosecution for acts performed in the exercise of consular functions but did not have full diplomatic immunity.
Jaishankar said while that's the rule for foreign diplomats in the U.S., he questioned whether Washington expects its diplomats abroad to be treated in kind. He said India has issued new identity cards for U.S. consular officials to specify that their diplomatic immunity does not cover "serious crimes"—referred to as "felonies" in the U.S.
"There is an issue of what does the U.S. expect abroad and what does the U.S. give at home. I think there's a reconciliation there that needs to be done," the ambassador said.
He said India is starting to work through the issue with the State Department, and Secretary of State John Kerry and his Indian counterpart, Salman Khurshid, discussed it when they met Wednesday on the sidelines of a conference on Syria in Switzerland.
Striking the positive tone set in the past two weeks since Khobragade returned home, Jaishankar said he was looking to advance a bilateral relationship that has grown stronger in the past 10 to 15 years. Two-way trade has grown to $100 billion.
But Jaishankar acknowledged that commercial relations have not been "plain sailing."
Big U.S. companies have concerns over what they claim are unpredictable and unfair tax demands. Pharmaceutical companies complain over what they view as unfair competition from manufacturers of generic drugs. Foreign investors, such as Wal-Mart, have grumbled over local content requirements as they look to break into the untapped Indian market.
Jaishankar said India has responded to pressures to remain business-friendly and considers "corrections" where they are needed. But he noted that India has its own concerns, including over whether U.S. immigration reform proposals—currently mired in Congress—that he said could hurt the competitiveness of Indian service industries in the U.S. whose business is worth $40 billion.
"It's an industry which actually keep American business competitive," he said. "We help the American economy function 24-7."
Growing military cooperation and some $9 billion in U.S. defense sales to India in the past decade also reflect a further deepening of the relationship. Delhi, however, has been careful not to align too closely to Washington in international affairs.