No risk of deflation, says Govt.

"In the last 30 years, there is no record of inflation falling this low since 1977-78," the statement said.

The sharp fall in inflation rate has triggered renewed fears of deflation, prompting market analysts to claim that the latest inflation data would open the way for the Reserve Bank of India (RBI) to cut interest rates further to lower the cost of credit for the corporate sector and push demand.

Deflation is when the inflation rate falls below zero percent, resulting in an increase in the real value of money a negative inflation rate. Inflation reduces real value of money while deflation increases the real value of money.

However, the government believes the chances of India facing deflation are remote.

According to Montek Singh Ahluwalia, deputy chairman of India's Planning Commission, while negative inflation was not ideal from a growth point of view, there would not be sustained deflation.

" We will not have sustained deflation. For one week if it (inflation) goes a little bit below, you can't call that deflation. But it is true that it has gone down sharply and I think it should remain at a low level," Ahluwalia said.