At a think-tank in the Indian capital, Panetta said that military ties had dramatically improved over the past decade.
But he said more work was needed to ensure the two countries could safeguard the "crossroads" of the global economy spanning the Indian Ocean and the western Pacific.
"For this relationship to truly provide security for this region and for the world, we will need to deepen our defence and security cooperation.
"This is why I have come to India," Panetta told an audience at the Institute for Defence Studies and Analyses.
Having overcome suspicions from the Cold War-era, "our two nations I believe have finally and irreversibly started a new chapter of our history".
Panetta, who met with Indian leaders on Tuesday and Wednesday, said he believed the relationship "can and should become more strategic, more practical, and more collaborative."
He said a new US strategy sought to "expand our military partnerships and our presence in the arc extending from the Western Pacific and East Asia into the Indian Ocean region and South Asia."
"Defence cooperation with India is a lynchpin in this strategy."
Panetta called for more joint research and production, expanding military exercises and for both countries to tackle legal dilemmas posed by space weapons and cyber warfare.
Security ties with India have steadily improved but US officials have yet to realise the goal of a game-changing partnership that could check China's role, analysts say.
India favours improving military ties and buying weapons from the United States but does not want to become a full-fledged American ally, preferring a degree of breathing space, analysts say.
Panetta's visit has focused in part on the planned withdrawal of US-led forces from Afghanistan by the end of 2014, with India concerned about a dangerous vacuum after foreign troops exit.
The United States favoured a more active role for India in Afghanistan, Panetta said in his speech.
"I urged India's leaders to continue with additional support to Afghanistan through trade and investment, reconstruction, and help for Afghanistan's security forces," he said.
A day after Al-Qaeda's number two leader was killed in a drone strike in Pakistan, Panetta acknowledged that both India and the United States faced difficulties with Islamabad.
"Pakistan is a complicated relationship for both of our countries, but one that we must work to improve," he said.
The US tilt towards Asia -- including closer ties to New Delhi -- is widely seen as a response to China's growing military and economic might, particularly in the South China Sea.
But Panetta said both the United States and India wanted to see Beijing play a prominent role in the region.
"As the United States and India deepen our defence partnership with each other, both of us will also seek to strengthen our relations with China," he said.
He hailed growing arms sales with India but said both countries needed to remove obstacles that were holding back defence trade and the transfer of technology.
"To realise the full potential of defence trade relations, we need to cut through the bureaucratic red tape on both sides," he said.
Panetta said he had ordered Deputy Defence Secretary Ashton Carter to lead an effort with Indian leaders to streamline procedures on arms deals.
The US defence chief's visit to India was part of a regional tour that included stops in Singapore and Vietnam, as Panetta sought to define Washington's plans to shift towards Asia.
Some commentators in the United States and Asia have questioned the substance of the declared "rebalancing", and whether the US will be able to deliver on its rhetoric to build partnerships and expand its naval presence.
Panetta told reporters the next step would require deeds and not just words.
"We now have to put meat on the bone, which means we have to follow through with actions," Panetta said.
COMMENTS (8)
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Panetta went to India, but he left empty handed. India wasn't interested to play a U.S. vassal to the U.S. global ambitions, nor will buy outdated American warplanes and become a hostage to the U.S. foreign policy for parts, upgrades, and training support. That is why Brazil has chosen France to co-produce Mirage fighter jets, as France agreed to share technology that will help Brazil to produce its own parts and upgrades. Plus, India buys a lot of Iranian oil regardless the U.S. sanctions in a bold way of independence from any U.S. diktat! When India invaded East Pakistan in 1971, Richard Nixon dispatched the U.S. Fleet, and warned India to stay out! India didn't back down; Nixon did!
India has seen how the U.S. has been pulling its allies into its wars, and it doesn't want to be in the same league as a subservient U.S. ally. That is why it refused to have any cooperation in the U.S. war in Afghanistan. It is a matter of pride and ego for India not to give an inch to any superpower as it is becoming one itself, on its own. It has no need to join any military pack in which another power wants to play the "Alpha" male. Nikos Retsos, retired professor
Agreed with John B above to a large extent. As an Indian American, I think the interests of both countries is largely maintaining an environment conducive to free trade and economic well being. How does that translate in SE Asia? Keeping the sea lanes open, ensuring that the environment is not vitiated by non-state actors.
To the above extent, China has exactly the same interests as India and the US. One key difference is that China is a revisionist power in SE Asia, and how it chooses to settle it's differences will have a major impact on security issues in this part of the world.
Has anyone ever stopped to ask how this supposed "Arab Spring" sprouted in the hearts of Arabs? None of the fruit appears worth harvesting. The Plot to Overthrow by Mohammad Goldstein will stagger your political thinking forever. He very bluntly tells the world who is a Jew and what a Muslim really is. Obama has a copy; you can get it for nuttin on the net. Laced with inside truth he tells more secret truth than most can digest. The Arab spring is a staged event.
India is not keen on being America's ally in its hostile neighbourhood. Besides it doesn't want to fall out with China, which isn't amused that the U.S. has made Asia-Pacific region as a "top priority" for its security policy. India's strategy of survival is non-alignment, which allows Delhi to change tactics. In the past it had been criticised by the West for its lack of joint efforts against Iran. It had disappointed Washington last year when U.S. companies lost out on a $12-billion deal to sell 126 fighter jets to Delhi. India maintained that the U.S. offered older aircraft technology. Officials was indignant that the U.S. was reluctant to transfer other sensitive technology, and that Washington insisted on after-sales, on-site inspections of equipment, part of U.S. policy to ensure sophisticated weapons aren't diverted to rogue states.
India to US is what Georgia was against Russia until Russia occupied it.
India similarly will be used against China and interesting thing is India want to be used or?
US use countries like toilet papers for their own objectives
This is one US strategy that I would like to see being implemented. If any thing goes wrong USA can escape to its continent India will be left to deal with the mess in the region.