US President Barack Obama and Indian Prime Minister Narendra Modi hit it off well during the latter’s September 2014 visit to Washington. Obama, out to please his guest, arriving after a handsome election victory, even learned a few Gujarati words to welcome Modi with the traditional “kem chho?” (How are you?) greeting.

Both sides have surmounted the nadir in bilateral relations under the previous Congress government, aggravated by the unsavoury Devyani Khobragade episode. Khobragade, an Indian diplomat posted in New York, was strip-searched and arrested by New York’s police on charges of what is known in the US legalese as human-trafficking, generating mass demonstrations and strong retaliation by India.

After sweeping away the mess resulting from the issue with the diplomatic broom the US appointed a new ambassador, Richard Rahul Verma, who is of Indian origin, in Delhi to replace Nancy Powell, who had resigned over the Khobragade fallout. Both New Delhi and Washington can now start afresh and mould the bilateral relationship into a strong partnership.

Obama, visiting New Delhi to attend India’s Republic Day celebrations on January 26, will not only be the first US president to be the chief guest for the Republic Day celebrations, but will also be the first sitting US president to visit India twice.

Diplomatic elbow room

Ambassador Verma’s appointment has been welcomed by India’s political and media circles not only because of his Indian origin, but also because of what Indians call his “constructive role” in the materialisation of the 2005 US-India deal on civil nuclear cooperation.

Verma, coming with bipartisan support in Washington, which gives him a lot more diplomatic elbow room than his predecessors ever had, praised the “true power and potential” of the relationship between the world’s oldest and largest democracies.

Since his installation as Prime Minister, Modi has made a couple of audacious moves on the international relations chessboard. Foreign policy experts see his invitation to Obama for the Republic Day celebrations as a diplomatic master-stroke.

Both India and the US see eye to eye on issues such as expansion of trade and defence ties, cooperation in maritime security and freedom of navigation, streamlining counter-terrorism initiatives, sustainable development and other issues of common interest.

India is expected to urge the US to use its levers to crack down on what it says is Pakistan-sponsored terrorism. According to American and Indian analysts, Washington wields considerable leverage on Pakistan, which has become dependent on US aid and will be hurt without it.

India also wants the US to “proactively” share intelligence. As recent intelligence leaks suggest, the 2008 Mumbai massacre could have been averted had there been greater US-India coordination and had intelligence experts correctly read the signs of the impending attack.

The recent release of the Mumbai massacre plot suspect Zaki-ur-Rahman Lakhvi, who was re-arrested by Pakistani authorities on a far less severe charge of abduction, has caused consternation in India. India will raise the case of Lakhvi and others in talks with the US side.

China’s rapid rise will also figure in the Delhi talks.

However, economic issues will take a pre-eminent position. Obama will encourage India to continue with its economic liberalisation process and further open its economy, cutting down tariffs and freeing the economy from the socialist baggage it has carried for much of the last century since its independence in 1947.

Washington will ask India to remove restrictions in its banking, retail and other sectors.

US-India trade has surged five-fold since the turn of the century and is chugging towards the $100 billion (Dh367 billion) goal.

Many American business leaders, with a penchant for the hyperbole, use the “sky’s-the-limit” metaphor to describe the incredible potential inherent in trade, although Washington is getting increasingly impatient with India’s notorious red tape and the burgeoning trade surplus that has risen from some $3 billion in 2009 to $15 billion in 2013.

Economic dynamics

Both sides need to quickly build on this recent momentum and iron out a bilateral investment agreement, which has been in the works for a decade.

The foreign investment ownership ceilings placed on many Indian sectors are too low to attract foreign investment, which is needed to unleash India’s economic dynamics. Obama will prod Modi to open up the services sector, particularly transportation, finance and retail, besides addressing copyright, taxation and other issues.

Indians are heartened by Obama’s expressive support for India’s candidature as a permanent member of the United Nations Security Council. Washington supports India’s membership in the Asia Pacific Economic Cooperation (Apec), but Obama will argue that greater economic reforms and trade liberalisation can make India an attractive Apec member. The US may also propose India’s membership in the Nuclear Suppliers’ Group.

The Obama administration, like previous administrations, sees India holding the greatest potential to influence regional dynamics in a way favourable to American interests in Asia.

The present and past Indian governments have also identified long-term benefits from a strong partnership with the US, but both sides must now seize this favourable momentum to strengthen relations into a strategic partnership.

Manik Mehta is a commentator on Asian affairs.