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Published : 08 Jan 2014, 10:52 PM
Hundreds of expatriate Americans use the American Community Support Association club, which has a bar, swimming pool, restaurant and a beauty parlor within the embassy premises. The club has been in existence for decades.
The embassy must cease all commercial activities benefiting non-diplomatic staff on its premises by January 16, a government source with direct knowledge of the dispute told Reuters.
India is furious at the December 12 arrest, handcuffing and strip search of its deputy consul in New York, Devyani Khobragade, who prosecutors accuse of underpaying her nanny and lying on a visa application.
Still festering 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 already postponed and a visit scheduled for next week by US Energy Secretary Ernest Moniz now looking doubtful.
India has already taken a number of retaliatory measures and is now stepping up the pressure on Washington ahead of a court appearance by the diplomat due on January 13.
The latest move is aimed at closing the embassy's social club to non-diplomats. India says the facilities are tax free because they are located in the embassy grounds.
"Basically the thing is that the provision of such facilities to non-diplomats and not paying taxes is clearly not in accordance with the Vienna convention," the government source with knowledge of the dispute told Reuters.
"You can't have these facilities inside and not pay taxes and allow non-diplomats," the source said.
A US embassy spokesman was not immediately available for comment.
India had already curtailed privileges offered to US diplomats to bring them in line with the treatment of Indian envoys to the United States. Since December, the U.S. ambassador in Delhi can be subjected to airport frisking and most consular staff have reduced levels of immunity.
Concrete barriers were removed from a road near the embassy last month, apparently in retaliation for the loss of a parking spot for the Indian ambassador in Washington.
Known as the American Embassy club, the social center is located on embassy grounds and along with the American Embassy School is the heart of Delhi life for the families of many expatriate employees of US corporations in India.
India is also preparing to take steps against the embassy school, which it suspects may be employing some staff in violation of visa requirements, the government source said.
Along with the embassy club, the highly respected school is the heart of Delhi life for the families of many expatriate employees of US corporations in India.
"Has an era of steadily improving ties between the two countries come to an end?" asked Indian Human Resource Minister Shashi Tharoor in a column published this week.
"Indian-American relations had been strengthening owing to both sides' shared commitment to democracy, common concerns about China, and increasing trade and investment," wrote Tharoor, a former senior UN official who unsuccessfully contested for the Secretary-General's post in 2007.
"The Khobragade affair suggests, however, that all this is not enough: sustaining a strategic partnership requires, above all, mutual respect."
LEGACY
As the two countries drew closer over the past decade, the United States had high hopes India would emerge as a counterbalance to a rising China and a new engine for the U.S. economy.
However, there is a widespread sense the relationship has drifted since India's 2009 nuclear deal with the Bush administration marked a sharp improvement.
Anti-Indian feeling has grown among the US corporate lobby. Indian sourcing rules for retail, IT, medicine and clean energy technology are contentious and US companies gripe about "unfair" imports from India of everything from shrimp to steel pipes. In June, more than 170 US lawmakers signed a letter to Obama about Indian policies they said threatened US jobs.
Now, with general elections due in India in four months, and mid-term elections in the United States in November, the fear is that the current row will make it harder for both sides to stick their necks out and make progress on thorny issues such as liability for nuclear equipment suppliers.
"There is such a long laundry list of concerns on the American side that seem to be ignored or slow rolled in India,' said Persis Khambatta at the Center for Strategic and International Studies, a think tank. "The risk is that this incident will dig up a lot of frustration that had built up."
