Annual inflation stood at 5.24 percent for the week to January 3, down from 5.91 percent a week earlier, according to the Wholesale Price Index, the most watched cost-of-living measure.
The figure, well within the central bank's tolerance level of seven percent for this financial year to March 2009, surprised analysts who expected to figure to be around 5.
India's inflation rate has more than halved from a 13-year high of 12.
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91 percent in August thanks to a dive in oil and other commodity prices as well as the knock-on effects of the widening global recession.
The fall in inflation has allowed India's central bank to slash interest rates in a bid to spur the economy, which is expanding at its slowest pace in six years.
Since October, the central bank has cut its leading repurchase rate by 350 basis points to 5.5 percent.
Analysts believe a further rate cut could be in store when the bank holds its next monetary policy meeting later this month.
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