The slowdown in India’s industrial sector growth to 3.8% y/y in May (from a revised 6.2% y/y in April) was worse than even we had expected. Recent monetary tightening suggests that the outlook for the industrial sector is about to get even worse. Admittedly, resilience in the economy’s other sectors means that annual GDP growth for FY08/09 should remain relatively robust. But with the slump most prominent in the capital goods and infrastructure components, India’s long term potential could suffer.