India's Prime Minister Narendra Modi, US President Barack Obama and Indian President Pranab Mukherjee at the Presidential Palace in New Delhi. Photo: Press Trust of India

New Delhi: US President Barack Obama and India's Prime Minister Narendra Modi have hailed a new era of friendship between the world's two largest democracies, as they broke the deadlock on a long-stalled nuclear pact.

After greeting Mr Obama with a bear hug as he stepped off Air Force One on Sunday, Mr Modi then trumpeted the "chemistry" he shared with his fellow leader on the first day of Mr Obama's three-day visit to the Indian capital.

Mr Obama, whose administration treated Mr Modi as a pariah until barely a year ago, said their new friendship reflected a natural affinity between the two countries. Both are looking for a counter-balance to a rising China.

Hands of friendship: US President Barack Obama shakes hands with India's Prime Minister Narendra Modi in New Delhi. Photo: Manish Swarup

While there were no major policy announcements apart from the unblocking of the nuclear agreement, Mr Modi said Mr Obama's decision to become the first US president to visit India twice while in office had huge symbolic importance.

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"Relations between countries depend less on full stops and commas and more on the relationships between leaders ... the chemistry between them," Mr Modi told a joint press conference.

"Barack and I have struck up a strong friendship ... this chemistry has not just brought me and Barack closer but also brought Washington and Delhi – and the people of our countries – closer together."

After opening his remarks with a few words in Hindi, Mr Obama also hailed the "personal friendship" with his counterpart.

The two men spoke for more than three hours, capping a remarkable turnaround in relations between the two countries after a diplomatic row in late 2013 that saw the Stars and Stripes torched on the streets of Delhi.

The headline-grabbing announcement following the talks was over the nuclear pact, which has faced a series of delays since being signed in 2008.

The agreement, which should give India access to civilian nuclear technology, has been held up by US concerns over India's strict laws on liability in the event of a nuclear accident.

While there were no immediate details on how the impasse had been broken, India has reportedly offered to set up an insurance pool to indemnify companies that build reactors.

"Today we achieved a breakthrough understanding on two issues that were holding up our ability to advance our civil nuclear cooperation and we are committed to moving towards full implementation," said Mr Obama.

"This is an important step that shows how we can work together to elevate our relationship."

The two men also discussed climate change, with India seen as one of the main obstacles to a global deal on limiting emissions that should be signed in Paris in December.

AAP