India's monthly industrial output contracted and inflation hit a near three-year low, official data showed Friday, fuelling hopes of a rate cut next year.
Production by India's factories, mines and utilities was down 4.2 percent in October from a year earlier.
Consumer inflation fell to 4.38 percent in November, down from October's 5.52 percent, after a weakening of global crude oil prices -- a key driver of inflation in India.
Bill Adams, senior international economist for PNC Financial Services Group, said the figures would make it easier for India's central bank to cut rates.
"Looking to 2015, India should be a big winner from the global decline in energy prices, which will support consumer spending power, dampen inflation, and provide the Reserve Bank of India with room to loosen monetary policy," he said.
Finance Minister Arun Jaitley has indicated he would favour a cut in borrowing costs, held at 8.0 percent since last January, to boost investment and consumer spending.
Consumer inflation was riding at over 10 percent last year but economists say Reserve Bank of India governor Raghuram Rajan's aggressive policies to curb price rises appear to be paying dividends.
November's consumer inflation was the lowest since the government introduced the current price index in January 2012 and well below the RBI's target of eight percent for January 2015.
India's central bank kept interest rates unchanged last week despite growing calls to ease monetary policy, saying a reduction would be "premature".
But the bank indicated it may cut interest rates in the new year to boost flagging economic growth.
India's economy grew 5.3 percent in July-September year-on-year, significantly slower than the previous three months, adding to the pressure on the RBI.
The central bank has forecast growth of 5.5 percent this year, slightly below the government's target of 5.8 percent.
India's economy has posted two years of sub-five-percent growth, the longest slowdown in a quarter century.