The January drop in the wholesale price index, the country's main gauge, was the first time in more than three years the rate had fallen to less than 7 percent.
The news was welcome to the government which has been battling high inflation, rising deficits, tight money and a slowing economy for months.
Earlier this month, the government's statistics office said India's gross domestic product in the current fiscal year ending March 31 was expected to hit a decade low 5 percent.
Thursday's inflation figures could encourage policymakers to take growth-supportive measures, and increase calls for more interest rate cuts by the central bank, The Wall Street Journal reported.
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