Retail prices rose 4.87 per cent year-on-year last month, their slowest pace since December, close to a 4.90 per cent annual rise predicted by analysts in a Reuters poll. In March inflation was 5.25 per cent, revised figures showed.
Annual growth in production at factories, mines and utilities slowed to 2.1 per cent in March, the slowest pace since last October and sharply below revised growth of 4.9 per cent growth a month ago.
With inflation staying well below the 6 per cent upper end of the Reserve Bank of India's (RBI) target range and growth momentum weakening, analysts are expecting the central bank to lower lending rates for a third time this year.
"With inflation coming lower and IIP (industrial output) also a little low, chances of a rate cut in June have increased," said Ashish Vaidya, head of trading at DBS in Mumbai.
The RBI has cut rates by a 50 basis points since January and is due to review them next month. It left rates unchanged in April, saying it would watch for transmission of previous rate cuts and price rises.
Tuesday's mixed economic data, however, highlights the need for Prime Minister Narendra Modi to revive corporate spending and encourage consumers to loosen their purse strings as he prepares to start his second year in office.
The nationalist leader came to power in May last year, winning the first outright parliamentary majority in 30 years with a promise to reboot economic growth and tamp down inflation.
Over the past year, Modi has taken a slew of measures to stabilize the economy and attract investment. But while inflation has cooled, in large measure due to the dramatic fall in global oil prices, recovery in India's domestic demand-driven economy remains sluggish.
Consumer goods output, a proxy for consumer demand, has fallen in nine out of past 12 months. It shrank an annual 0.7 per cent in March.
"One thing is for sure: growth has weakened considerably and the government somehow has to find out radical measures to move investment sentiment," said Rupa Rege Nitsure, chief economist at L&T Financial Services.
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