Reuters International

U.S. Secretary of State John Kerry (L) shakes hands with Indian Prime Minister Narendra Modi on the sidelines of the Vibrant Gujarat conference in Ahmedabad January 11, 2015. REUTERS/Rick Wilking

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By Lesley Wroughton

NEW DELHI (Reuters) - U.S. Secretary of State John Kerry experienced some of the challenges that lie in the way of India's economic rise, as monsoon floods in New Delhi became a talking point at his meeting with Prime Minister Narendra Modi.

"It looks like the rains this time have warmly welcomed you," Modi said as he greeted Kerry and the U.S. delegation on Wednesday for talks.

Kerry's motorcade was caught in two hours of traffic chaos when he arrived in the Indian capital on Monday night for the annual U.S.-India Strategic and Commercial Dialogue that seeks to deepen the bond between the world's two largest democracies.

On Wednesday, on the way to deliver a speech to students after another heavy downpour, his car inched through streets that in places looked like fast-flowing rivers. At times the water reached the top of its wheels.

"You guys all deserve an award for getting here today. I don't know if you came in boats or amphibious vehicles of some kind but thank you so much for making the effort," he told the students at the Indian Institute of Technology.

Roads were blocked off as knots of workers battled to drain the floodwaters.

As the U.S. delegation approached Modi's office, Commerce Secretary Penny Pritzker fell when her heel got caught in a crack on the sidewalk. Kerry came to her aid, picking up a binder she had dropped, and steadying her as they made their way into the meeting.

Pritzker looked shaken but was unhurt.

Earlier, she told reporters that one focus of the India-U.S. dialogue was on so-called "smart" cities and infrastructure.

SMART CITIES

Modi has launched an ambitious plan to build up to 100 such futuristic cities to cater for a population that has reached 1.3 billion and is expected to exceed China's by 2022, according to the United Nations.

New economic figures out on Wednesday showed that India's $2.1 trillion economy grew by 7.1 percent in the quarter through June.

That was the fastest of any of the world's largest economies but down from 7.9 percent in the prior quarter. India's economy is growing faster than China's but is just a fifth as large today.

Modi, who needs growth to top 8 percent to create jobs for the million young people who join the workforce each month, has invited foreign investors to "Make in India" and emulate China's industrial miracle, but for now private investment remains weak.

To boost economic opportunity for all, India has to attract investment capital, Kerry said.

"You have to have a market defined by fairness, transparency and a level playing field," he said.

"You have to have sensible regulations and your bureaucracy needs to be streamlined and effective."

India announced on Wednesday a plan to allow foreign investors to settle, emulating policies in countries such as the United States and Singapore to woo investment from abroad.

Despite the inclement weather in New Delhi, Kerry decided to extend his stay for a couple of days after the official part of his visit.

State Department deputy spokesman Mark Toner said Kerry would then fly on to the Group of 20 summit in China on Sept. 4-5. The G20 gathering will be the last to be attended by Barack Obama as U.S. president.

(Additional reporting by Douglas Busvine; editing by Andrew Roche)

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