WASHINGTON (AP) — India and the U.S. are holding preliminary discussions to resolve their differing interpretations of diplomatic immunity as they look to mend ties damaged by the row over American treatment of an Indian diplomat who was arrested and strip-searched in New York, India’s ambassador said.

Subrahmanyam Jaishankar, India’s new envoy in Washington, said Friday his priority is to raise the “morale” of a relationship that remains fundamentally good despite the spat over Devyani Khobragade, who was expelled from the U.S. this month after she was indicted on accusations of exploiting her housekeeper.

“As you would say in the markets, the fundamentals are good, it’s the sentiment that needs improving,” Jaishankar told The Associated Press in an interview.

Devyani Khobragade. Pic: AP.

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 the 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 from acts performed in the exercise of consular functions, and not 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 US give at home. I think there’s a reconciliation there that needs to be done,” the ambassador said. “What fairness would dictate is we would expect and give what you (the U.S.) expect and give.”

He said India is starting to work through the issue with the State Department, and U.S. 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 — their first face-to-face since the imbroglio over Khobragade.

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.

“It’s big economically, there’s a high degree of political comfort,” he said, noting the importance of more than 5 million Indian-Americans in helping to foster it.

But Jaishankar acknowledged that commercial relations have not been “plain sailing.”

Big US 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, although it’s been strongly supportive of the reconstruction of a post-Taliban Afghanistan through its development aid.

Jaishankar said India wants to see peace and stability, but he would not be drawn on whether Afghan President Hamid Karzai should sign a security agreement with Washington to allow some U.S. forces to stay past the end of the NATO mission in the country, scheduled for this year. Karzai has demurred so far.

Afghanistan has long been an area of strategic rivalry between India and its historic enemy Pakistan, whose relations remain fragile, snared on Indian concerns that Pakistan is a base for Islamic militants that attack India.

Jaishankar said there’s a “serious desire” among Indians to have a lasting settlement with Pakistan, and he kept an open mind about the fledgling efforts at rapprochement by Pakistan’s government — the latest in decades of peace efforts that he said have mostly floundered because of terrorism coming from Pakistan.

Pakistan’s Prime Minister Nawaz Sharif says Washington could help mediate between the South Asian nuclear rivals, but the Indian envoy saw little chance of that.

He said if people who are so culturally similar can’t talk to each other, “what would someone far away do? What role could they conceivably have?”