*

India's opposition blames Modi government for diplomatic

failure

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Rupee, equity indexes fall after Trump's tariff threat

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Economists warn tariffs may hurt growth, manufacturing

ambitions

(Recasts with Indian trade minister, US treasury secretary

comments, market closure)

By Manoj Kumar and Nikunj Ohri

NEW DELHI, July 31 (Reuters) -

India vowed on Thursday to protect its labour-intensive

agriculture sector, a central sticking point in bogged-down

trade talks with the U.S., as Washington threatened 25% tariffs,

triggering outrage from the opposition and a slump in the rupee.

Without a deal, the rate will go into effect from Friday

and single out India for harsher trade conditions than its major

peers, potentially damaging the economy of a strategic U.S.

partner in Asia seen as a counterbalance to Chinese influence.

Though negotiations are continuing, they have hit a wall

due to the United States' insistence that India open its

agricultural markets.

New Delhi has long shielded the sector, which - with

over 40% of the workforce engaged in farming activities -

constitutes the most influential voting bloc in the world's most

populous nation.

"The government attaches the utmost importance to

protecting and promoting the welfare of our farmers,

entrepreneurs, and (medium and small businesses)," India's trade

minister Piyush Goyal said in a statement in the parliament.

U.S. Treasury Secretary Scott Bessent said in a CNBC

interview on Thursday that the U.S. trade team was frustrated

with India, adding that the future of trade deal between the two

nations was now up to India.

U.S. President Donald Trump had said on Wednesday that, in

addition to the 25% tariff on imports from India, the country

would face an unspecified penalty for its dealings with Russia

and its membership in the BRICS grouping of nations.

"I don't care what India does with Russia," Trump wrote in a

Truth Social post on Thursday. "They can take their dead

economies down together, for all I care."

India's benchmark equity indices, the Nifty 50 and

BSE Sensex, fell as much as 0.9% in early trade before

paring losses and both closing around 0.4% lower.

The rupee closed 0.2% down at 87.5950 to the dollar

after touching its lowest level in more than five months earlier

in the day.

COOLING RELATIONS

The government's failure to clinch an agreement with

Trump, even as other major world economies like the European

Union, Japan and South Korea have struck deals in recent days,

sparked anger among India's political opposition.

"The government has destroyed our economic policy, has

destroyed our defence policy, has destroyed our foreign policy,"

opposition leader Rahul Gandhi told reporters on Thursday.

Economists warned the steep tariff could hurt India's

manufacturing ambitions and trim up to 40 basis points off

economic growth in the financial year to March 2026. Some

doubted whether further negotiations would lead to improved

conditions.

"While further trade talks may bring the tariff rate down,

it appears unlikely that India will secure a significantly

better outcome than its eastern neighbours," said Priyanka

Kishore, an economist at Asia Decoded.

Other countries have negotiated better U.S. tariff rates,

with Vietnam agreeing to 20%, Indonesia to 19% and Japan and the

EU both facing levies of 15%.

On Wednesday, Trump said Washington had reached a trade deal

with India's arch-rival Pakistan that Islamabad said would lead

to lower tariffs on its exports, though neither side has yet

revealed the agreed rate.

Since India's short but deadly conflict with Pakistan in

May, New Delhi has been unhappy about Trump's closeness with

Islamabad and has protested, casting a shadow over trade talks.

Despite previous public displays of bonhomie between Trump

and Prime Minister Narendra Modi, India has hardened its stance

towards the United States in recent weeks.

Trump has repeatedly taken credit for the India-Pakistan

ceasefire he announced on social media on May 10, but India

disputes his claim that it resulted from his intervention and

trade threats.

The U.S., the world's largest economy, currently has a

trade deficit of $45.7 billion with fifth-largest economy India.

(Additional reporting by Jaspreet Kalra in Mumbai; Writing by

Sudipto Ganguly in Mumbai; Editing by Clarence Fernandez, Ros

Russell and Joe Bavier)