US Secretary of State Hillary Clinton called on India Monday to further cut its imports of Iranian oil, saying New Delhi should use its growing clout to help isolate the Islamic republic.

"India... is certainly working towards lowering purchases of Iranian oil. We commend the steps they have taken thus far," she told an audience of school children and activists in the eastern Indian city of Kolkata.

"We hope they will do even more and we think there is an adequate supply (from other exporters) in the market place... We think this is part of India's role in the international community."

India, which depended on Iran for 12 percent of its imports last year, says it has cut Iranian imports "substantially" despite initially saying it would not join US and European-led efforts to cut off oil revenues for Tehran.

Clinton, speaking ahead of meetings with India's leaders, said that it was essential that pressure remained on Iran over its disputed nuclear programme and argued that a new round of negotiations were the fruits of previous efforts.

In New Delhi later Monday, Clinton will sit down with Indian Prime Minister Manmohan Singh aiming to re-spark a bilateral relationship hailed as "one of the defining partnerships of the 21st century" by President Barack Obama.

The world's two largest democracies have rapidly expanded ties since overcoming mutual mistrust during the Cold War, but tension over Iran and difficulties in their trade relations have stunted progress.

Relations between Delhi and Washington were reset by former US president Bill Clinton in the 1990s and invigorated by his successor George W. Bush, who signed a landmark nuclear energy deal that was meant to hand business to US companies.

Legislation passed in India since then is seen by Washington as penalising its private nuclear companies, who are unable to take on the liability imposed on them in the event of an accident.

State-backed companies from France and Russia have profited at their expense.

"We've made it clear to the government that under the legislation that was passed it would be difficult for US companies to participate," Clinton said. "We are still discussing this and we're hoping there will be a way to work out the remaining kinks in this."

The US is also pushing India to open up more of its economy to foreign investors, particularly retail where US supermarket giant Walmart is keen to tap the potential of the market of 1.2 billion people.

While in Kolkata, Clinton met the chief minister of the local state of West Bengal, Mamata Banerjee, whose party sits in the ruling national coalition and has fiercely resisted the entrance of foreign supermarkets.

On Iran, a US law will slap sanctions starting June 28 on banks from countries that keep buying oil from the Islamic republic amid charges by Israel and some Western officials that the regime is building a bomb under the cover of a nuclear energy drive.

Washington is currently determining whether to exempt India from the sanctions along with European Union nations and Japan, with Clinton saying a decision was still two months away.

While critics say US-India relations are drifting, US officials cite areas of convergence and cooperation on shared objectives.

Washington was pleasantly surprised when India, in response to domestic pressure, recently backed a US-led UN resolution pushing Sri Lanka on human rights.

India has also been repairing ties with historic enemy Pakistan, removing a headache for the United States whose own relations with Islamabad have been in crisis since US forces killed Osama bin Laden a year ago.

The soon-to-retire secretary of state said she believed the new head of the militant group, Egyptian cleric Ayman al-Zawahiri, was in hiding in Pakistan.

"There are several significant leaders still on the run. Zawahiri, who inherited the leadership from bin Laden is somewhere, we believe, in Pakistan," she said.

Clinton also said the US would keep up pressure for the arrest of the founder of Pakistan-based militant group Lashkar-e-Taiba (LeT) who is wanted over the 2008 Mumbai attacks.

The United States last month offered a $10 million reward for information leading to the conviction of Hafiz Saeed, who lives openly in Pakistan and is considered a mastermind of the assault in India that killed 166 people.