India and the United States were trying to narrow differences on nuclear trade on Thursday ahead of President Barack Obama's visit, but New Delhi ruled out a change in its liability law that has choked off US investment.
Nuclear commerce worth billions of dollars was meant to be the centrepiece of a new strategic relationship between the United States and India, allowing New Delhi access to nuclear technology and fuel without giving up its weapons programme.
But the 2010 Indian nuclear liability law that makes equipment suppliers ultimately responsible for an accident has held back firms including GE-Hitachi, Toshiba's Westinghouse Electric Company and France's Areva from proceeding with the construction of reactors.
On Thursday, negotiators from the two governments met for a second day in London to hammer out an accord that Obama and Indian Prime Minister Narendra Modi hope to announce during talks set for Sunday. It followed talks in Vienna and New Delhi.
"Even as we speak our negotiators are working together in a collaborative manner in London. It is the third time they are meeting in approximately 45 days, you can see the element of effort that is going into the nuclear issue," foreign ministry spokesman Syed Akbaruddin told reporters.
India has offered to set up an insurance pool to indemnify companies which have won the right to construct reactors in the country against liability in the case of a nuclear accident, as a way around the law.
It says the law can't be changed for lack of political support.
Under the plan readied by state-run reinsurer GIC Re, insurance would be bought by the companies contracted to build the nuclear reactors who would then recoup the cost by charging more for their services.
Alternatively, state-run operator Nuclear Power Corporation of India (NPCIL) would
take out insurance on behalf of these companies.
"What is being discussed is how, within the four walls of our legal framework, our legislation, we can provide assurances to our partners in the US of any concerns they may have through their vendors or their lawyers," Akbaruddin said.
India's law, written under the shadow of the Bhopal gas disaster, is a deviation from the global norm in which the nuclear operator bears responsibility for an accident, not the equipment providers.
Foreign nuclear firms are also worried about another part of Indian law which they say exposes them to tort claims.
One US official said that contact group talks in London were continuing and that there were "some creative things in the mix" to address whether India needed to change the law to address industry concerns about nuclear liability issues.
"The best way would be to change the law," said the official, adding that negotiators were examining how to come up with "a reasonable package of assurances without changing the law."
Obama's visit had an important "forcing function" in the nuclear discussion, the official added, but even if there is no breakthrough at the summit, the nuclear talks will continue as part of the US administration's broader effort to promote a clean energy partnership with India.