India ordered the United States on Wednesday to close down an embassy club for expatriate Americans in New Delhi, escalating a diplomatic row that has brought faultlines in ties between the nations out in the open.
Furious at the arrest, handcuffing and strip search of its deputy consul in New York last month, India initially reacted by curtailing privileges offered to U.S. diplomats. The officer, Devyani Khobragade, was accused by prosecutors of underpaying her nanny and lying on a visa application.
(Read more: American-style start-ups take root in India)
Nearly a month on, the row has started to affect the wider relationship between the world's two largest democracies, with one high-level visit by a senior U.S. official already postponed and a visit scheduled for next week by U.S. Energy Secretary Ernest Moniz looking doubtful.
Both sides have said the relationship is important and will not be allowed to deteriorate – Washington needs New Delhi on its side as U.S. troops pull out of Afghanistan and it engages with China. Millions of Indians have made the United States their home and bilateral trade is worth about $100 billion a year.
US Embassy in New Delhi, India, on December 17, 2013.Raj K Raj | Hindustan Times | Getty Images
The row over Khobragade, which should not have been more than an easily resolved irritation, has plunged the two countries into a crisis described by Indian media as the worst since New Delhi tested a nuclear device in 1998.
"I'm a little worried it may spin out of control," said Lalit Mansingh, a former Indian ambassador to the United States who has also served as India's top diplomat and is now retired.
India stepped up the pressure on Wednesday ahead of a Jan. 13 court appearance where Khobragade could be indicted, ordering the U.S. embassy in Delhi to stop receiving non-diplomats at an embassy club popular with expatriate Americans for its swimming pool, restaurant and bar.
(Read more: India clears Tesco's $110 million investment plan)
Americans working in the Indian capital have been frequenting the club for decades. An Indian government source said the club should not be offering services to non-diplomats when it has tax-free status.
A U.S. embassy spokesman was not immediately available for comment.
In Washington, State Department spokeswoman Jen Psaki stressed the importance of relations with India and said the United States "endeavours to always be in compliance with local laws and regulations."
"We are continuing our conversations with the Indian Government … with the importance of the broad strategic U.S.-India partnership firmly in mind," she said.
