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* Ambassador says issue must be kept in perspective

* India wants Khobragade case resolved; equal treatment

* India values strong U.S. presence in Asia

By David Brunnstrom

WASHINGTON, Jan 21 (Reuters) – The case of the Indian consul

arrested and strip-searched in New York last month was handled

“appallingly” and needs to be resolved, but the United States

remains probably India’s most important ally, the Indian

ambassador to Washington said on Tuesday.

“I won’t underplay this incident, I won’t overplay this

incident. I think we need to see it in perspective,” S.

Jaishankar said in an interview. “I think we are in the midst of

working this one out.”

Jaishankar said India was “perplexed” by the decisions of

U.S. authorities to arrest and strip-search 39-year-old Devyani

Khobragade, India’s deputy consul in New York, after she was

accused of visa fraud and underpaying her maid.

“There was a fair measure of anger about both the substance

of the problem and the way it was handled,” he said. “It was not

just done publicly; frankly it was done appallingly.”

But Jaishankar, who arrived in Washington in December after

serving as Indian ambassador to China, played down the impact on

the practical side of the relationship – emphasizing that the

two sides were still talking despite the postponement of two

high-level U.S. visits this month, including one by U.S. Energy

Secretary Ernest Moniz.

“Frankly, it’s probably the most important relationship,” he

said. “We are not holding up business, or Pentagon dealings, or

congressional dealings … or science programs and saying, ‘They

don’t get done until things get sorted out.'”

Jaishankar said, however, there was a need to resolve both

the Khobragade case and the broader issue of the lesser level of

diplomatic immunity accorded to Indian and other foreign

consular staff in the United States compared with what

Washington expects for its consular staff serving overseas.

‘LARGER ISSUE’

Asked if India supported a demand from Khobragade’s lawyer

for the charges against her to be dropped, he said, “That is an

issue in respect of this diplomat, but I think there is a larger

issue of immunities and privileges.”

“I think we need to sit down and work this one out.”

Khobragade left the United States this month after a complex

deal in which her diplomatic status was switched to the United

Nations, affording her a greater degree of immunity from

prosecution. But U.S. authorities have so far refused to drop

the charges against her.

Until the issue was resolved, Jaishankar said, the level of

immunity enjoyed by U.S. consular officials in India would be

reduced to exactly the level granted in the United States.

“Since our consular officials have no immunity against

felonies, U.S. consular officials do not have immunity against

serious crimes in India,” he said.

India sharply curbed privileges offered to U.S. diplomats in

retaliation for Khobragade’s treatment and asked Washington to

withdraw a diplomat from New Delhi.

It also ordered the U.S. Embassy to close a club for

expatriate Americans in New Delhi, and a government source said

it was also preparing steps against the American Embassy School,

which it suspected may be employing some staff in violation of

visa rules.

Jaishankar noted that many Asian nations valued the U.S.

presence in their region and that India was keeping a “watchful”

eye on the debate over the U.S. budget, which has seen U.S.

military leaders warning about the possible impact on

Washington’s ability to respond to global crises.

“I think as uncertainties mount, as volatility grows, I

think people do value a strong American presence,”

Jaishankar said.

He noted efforts last year by then-U.S. Deputy Defense

Secretary Ashton Carter to deepen bilateral defense ties,

including proposed co-development of the next version of the

Javelin anti-tank missile now built by Raytheon Co and

Lockheed Martin Corp. [ID: nL2N0HG00N]

Jaishankar called co-development of defense technologies

with India “uncharted territory” and added it was a matter he

had discussed in his initial interactions with the Pentagon

since taking up his post. Still, he said such proposals would

take time to develop.

(Additional reporting by Phil Stewart; Writing by David

Brunnstrom; Editing by Peter Cooney)