It's been 17 years since the US and India last engaged in tit-for-tat diplomatic expulsions. That was in 1997,  when Delhi kicked out two US intelligence officials (one, reportedly, the CIA’s Deputy Head of Station) and the US responded in kind. One has to go back much further, to 1981, for the previous incident, when political counsellor George Griffin was prevented from taking up a post in Delhi, allegedly because he worked for the CIA. Those, of course, were very different eras in US-India relations: a less confident and weaker India stood at the periphery of US foreign policy, and the stakes were correspondingly lower. The ripples were mild.

The repercussions from the latest US-India expulsions might be more serious.

Indian diplomat Devyani Khobragade (pictured) has returned home after her indictment for visa fraud and making false statements about the treatment of her domestic worker, Sangeeta Richard. Khobragade was reportedly open to a pleading guilty in exchange for reduced charges, but India's foreign ministry wouldn't accept any deal that would frame it as a criminal offense. Once that plea bargaining broke down, a deal was struck: Khobragade would be granted the immunity she has claimed all along, but the charges would stay and she would have to leave. India then reciprocally expelled the US Embassy in Delhi's head of security who, to complicate the story further, had employed Richard's family in India and helped to evacuate them to the US, owing to alleged intimidation.

It's hard to see a winner here. The Economist argues that 'the State Department has made the big concession', but this is tenuous. KC Singh, India's former Ambassador to Iran, noted on Twitter that this was a 'middle path solution'. Worryingly, both sides lamentably misread the other throughout the dispute. The US should have realised early on that India would escalate matters quickly, not least of all in the face of unprecedented domestic political and media pressure, a phenomenon that the Lowy Institute wrote about three years ago. India should have foreseen that the US justice system would follow through with the charges as threatened, and that the case would not be dropped. Khobragade might have been withdrawn before things spiraled out of control.

The dispute leaves several lingering issues.

India, irked by the US insistence that consular officials do not enjoy the same immunities as full diplomats, has stripped Washington's consular officials in India of many of their privileges, some of which were reportedly granted in the aftermath of 1962 when the US extended emergency assistance to India during and after the Sino-Indian war. It's hard to see these coming back. Some Indians, like the former Consul General in New York, have demanded that Delhi now negotiate a bilateral agreement with the US akin to 'secret' ones the US is alleged to have with countries like Russia, to give even consular officials better immunity and to ensure strict reciprocity.

India is likely to tone down most of the coercive steps it was taking (such as its attempt to shut down the local American club) but there are many issues of protocol the two sides will now need to work out. Even after the apparent deal on Thursday, the US Embassy in Delhi was seeing its cars ticketed and followed. We should not assume that these matters are settled.

The common practice of Indian (and other) diplomats taking household staff with them on postings will also come under greater US press and legal scrutiny. Sangeeta Richard herself yesterday made a public statement: 'I would like to tell other domestic workers who are suffering as I did — you have rights and do not let anyone exploit you'. The New York Times pointed out that 20 domestic-worker trafficking lawsuits have been filed against diplomats and others in the US over the past ten years, often on very similar grounds to this case. Whatever one thinks of their merits, more such cases seem likely to arise and these will have diplomatic ramifications.

As regards Khobragade herself, her husband is an American citizen (a professor at the University of Pennsylvania) and her children remain in the US. American prosecutors told the judge that 'we will alert the court promptly if we learn that the defendant (Khobragade) returns to the United States in a non-immune capacity, at which time the government will proceed to prosecute this case and prove the charges in the indictment'. The State Department has clarified that 'should she seek to enter the United States she could be arrested'.

Khobragade, conceding that she would not be able to return to the US, told an Indian newspaper over the weekend that 'I wonder if I will be able to ever reunite with my family, my husband, my little kids. I miss them'. Of course, should she decide to pack her diplomatic career in, she's already received offers from various political parties to stand for parliament, although she might have some skeletons in her closet to contend with.

There are many in both Delhi and Washington who will have little sympathy for Khobragade, and will instead be eager to re-focus on the two nations' common interests across Asia. Both the US and India have an abiding interest in the stability of Afghanistan as US troops draw down this year, in moderating China's assertive behaviour, and a host of other issues. Already this year India is engaging more deeply with traditional US allies — Japan’s defence minister was in Delhi only a few days ago — and the US is making a renewed attempt to give teeth to its 're-balance' or 'pivot'.

Some Indian analysts, like Ashok Malik writing in the Times of India, now argue that 'a larger paralysis could well extend into the second half of 2014'. This is probably unduly pessimistic, but it was always going to be difficult to move the relationship forward in a big election year for India. In the shadow of this squabble, that task has become harder still.