Wells told reporters during a conference call that India needs to open up as it is still a protected market, which sometimes denies a level playing field to foreign companies.
The US also described the visit by its ambassador and other foreign envoys to Jammu and Kashmir earlier this month as 'a useful step'.
The decision to resume Islamabad's participation in the coveted International Military Education and Training Programme (IMET) was first announced by the State Department last month.
Amid rising cases of mob-lynching and culprits roaming free with impunity, Alice Wells reminded India that its Constitution mandates a secular state that upholds the rights of all citizens to practice religion freely, freedom of expression and speech, and equal treatment before the law.
According to government sources, hundreds remain in detention - many without charges, under the draconian Public Safety Act, which allows for administrative detention of up to two years.
Wells' visit comes a day after the Indian government scrapped Article 370 that gives special status for Jammu and Kashmir and decided to split the state into two Union Territories: Jammu and Kashmir with an Assembly and Ladakh without one.
Imran Khan also explained to the lawmakers that "Pakistani governments were not in control".
External Affairs spokesperson Raveesh Kumar clarified that no request has been made by PM Modi to the US President to mediate in the Kashmir issue.
Alice Wells, the top American diplomat for South Asia, is arriving in New Delhi for the strategically important India-Japan-US trilateral dialogue beginning on Wednesday.
