Consumer prices rose at a faster pace than anticipated in March, but remained below the central bank's target for an eighth straight month, increasing the chances for a key interest rate cut in June.
The annual retail inflation rate rose in March to 2.86 per cent, from 2.57 per cent in the previous month, government data showed on Friday. A Reuters poll had predicted March retail inflation of 2.80 per cent.
Inflation has fallen sharply from the peak of 12.17 per cent reached in November 2013, a development that could help Prime Minister Narendra Modi in general elections that began on Thursday and run to May 19.
However, declining farm incomes and record high unemployment could hamper PM Modi's chances to win a full majority in parliament. The election results are due on May 23.
While food inflation could pick up in the coming months, the central bank may wait for clarity on oil prices and the next government's spending plans before taking a decision on rates, said Tushar Arora, senior economist at private lender HDFC bank.
"We continue to expect one more rate cut by the RBI (Reserve Bank of India) this year," Mr Arora said.
Annual economic growth in October-December was 6.6 per cent, a drop from 7.0 per cent in the previous period and the slowest in five quarters.
A marginal increase in inflation in March stemmed from higher costs for fuel, housing, health and education services. Health and education costs rose more than 7 per cent in March from a year earlier.
On April 4, the RBI's monetary policy committee cut its benchmark repo rate to 6 per cent, and many economists expect another 25 basis point trim in June.
The central bank has lowered its retail inflation forecast to 3.8 per cent by January-March 2020, but warned it could be higher if food and fuel prices rise abruptly, or if fiscal deficits overshot targets.
The next RBI policy review is scheduled for June 6.
Retail food prices rose 0.30 per cent in March from a year earlier, after falling for five straight months.
Food prices could rise depending on the monsoon rains in June-September, which is crucial for crops, economists say.
The country's only private weather forecasting agency says the rains are expected to be below normal.
Prices of crude oil, the country's biggest import item, have gone up over 30 per cent this year to around $71 a barrel.
India meets 80 per cent of its fuel needs through imports. Retail petrol prices this year have gone up 6.04 per cent and diesel by 5.5 per cent in Delhi.
Core consumer inflation, which strips out food and fuel prices, was estimated at 5.02-5.08 per cent in March, lower than February's 5.3-5.4 per cent, according to three analysts after seeing inflation figures released on Friday.
Figures also released on Friday showed annual industrial output rose 0.1 per cent in February compared with an downwardly revised 1.44 per cent for the previous month.