Indian diplomat Devyani Khobragade walks with her father Uttam Khobragade (R) upon her arrival at Maharashtra Sadan state guesthouse in New Delhi January 10, 2014. [Photo/Agencies]

'SIGNIFICANT DAMAGE'

The deal allowing Khobragade to return to India had been expected to help mend the rift, but there was no sign, in the short term at least, that India was ready to forgive and forget.

"We called the US mission to withdraw an officer of similar rank of Devyani as reciprocal action," an Indian official said.

The official told reporters the government believed the US diplomat had a role in the Khobragade case but gave no more details.

Analysts say it will take time to dispel the bad feelings built up between New Delhi and Washington, and some fear lasting damage has been done to a relationship Washington hoped would serve as both as a counterbalance to a rising China and as an engine to boost the US economy.

With national elections due in India by May, political parties there have seized on the case and labeled it an attack on national sovereignty.

Political analyst Persis Khambatta of the Center for Strategic and International Studies in Washington said that now Khobragade had returned to India "tensions may begin to ease between the U.S. and India, but I fear that this episode has caused significant damage."

During the crisis, both New Delhi and Washington repeatedly stressed the importance of their strategic partnership, which includes $100 billion of annual trade.

The president of the US-India Business Council, Ron Somers, called the Khobragade incident "deeply regrettable."

"The US-India relationship is strategic to both countries, and is simply too important to allow it to be degraded or side-tracked," he said.

Although Khobragade was indicted by a federal grand jury in New York on Thursday, she had already been transferred to India's UN mission, a move that accorded her diplomatic immunity. India denied a US request for that immunity to be waived and she was asked to leave the country.

Many Indians felt the case was an example of US arrogance and taking its friendship with India for granted and they supported the government's tough stand.

"India's perception that it is not treated on par with other strategic partners, and the US frustration with a relationship that is too long on 'potential' have come to the fore over a seemingly small, but not unimportant incident," Khambatta said.

Middle-class Indians sympathized more with Khobragade than with her housekeeper. Indian political circles are calling Khobragade a hero, with one party in her home state of Maharashtra saying it would talk to her about running for parliament.