An important thing to clear up here is that Khobragade was not a full "diplomat" at the time of her arrest but rather a "consular official" who receives a limited type of immunity that only applies to laws broken while carrying out official duties.
Also the most serious charge against her isn't the wage dispute but perjury resulting from incorrect data she put on the visa forms.
India has subsequently promoted her from the NY consulate to the Indian diplomatic mission to the UN and has claimed retroactive diplomatic immunity for her, but there are procedural questions about this move.
A better approach would have been to deport Khobragade while still offering protection/visas to the servant and her family. Quite a few Indians have been arrested on similar charges in the past without serious uproar, it's the fact that a consular official was treated this way. The US tends to be rather lax in its definition of "diplomatic immunity" when it comes to their benefit (see Raymond Davis) so such strictness is very hypocritical. The impression I get as a neutral observer is that the focus of the action was to punish the alleged guilty rather than try and achieve recourse for the alleged victim.
Also the most serious charge against her isn't the wage dispute but perjury resulting from incorrect data she put on the visa forms.
India has subsequently promoted her from the NY consulate to the Indian diplomatic mission to the UN and has claimed retroactive diplomatic immunity for her, but there are procedural questions about this move.