On a month-on-month basis, however, the industrial growth as measured by the Index of Industrial Production (IIP), increased from 0.3 per cent in November.
The biggest monthly fall for gas prices since the 1980s helped drag down United Kingdom inflation to the lowest level in two years in January as the government's energy price cap came into effect.
This is the sixth straight month where the inflation has remained below the RBI's medium term target of 4 per cent.
Economists in a Reuters poll predicted retail inflation would edge up to 2.48 percent in January from the downward revised December figure of 2.11 percent.
Meanwhile, the country's industrial output in December rose 2.4 percent from a year earlier, slightly higher than forecast, government data showed on Tuesday.
India's economy is slowing, hit by reduced growth in consumer spending and in the farm sector.
The CPI including owner-occupiers' housing costs (CPIH) - the ONS's preferred measure of inflation - was 1.8 per cent in January, down from 2 per cent in December. Consumer non-durable goods growth was at 5.3 per cent in December compared with 16.8 per cent growth in the year-ago period.
January's fall in inflation was due mainly to cheaper energy, "partly offset by rising ferry ticket prices and air fares falling more slowly than this time a year ago", ONS statistician Mike Hardie said.More news: Mickelson explains lack of emotion when playing with Casey
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The "food and beverages" segment registered a deflation of 1.29 per cent in January as against 1.49 per cent deflation a month ago.
"The further falling back in inflation facilitates the Bank of England maintaining a "wait and see" approach on interest rates until after the United Kingdom leaves the EU", Howard Archer, chief economic adviser to the EY ITEM Club consultancy, said.
The prices of vegetables declined 13.32% while prices of sugar and confectionery dropped 8.16%. It softened to 5.4 percent in January, according to economists at Yes Bank Ltd. and Axis Bank Ltd. Pranjul Bhandari, chief India economist at HSBC Holdings Plc, sees it slowing to as low as 4 percent this year.
The Reserve Bank of India earlier this month eased its monetary policy, by reducing the repo rate - the key interest rate at which it lends short-term funds to commercial banks - by 0.25 per cent to 6.25 per cent.
Experts said headline CPI is expected to stay benign in the coming months and provides room for further rate cut by the RBI.
The retail inflation number was much lower than the market expectations, said Tushar Arora, a senior economist at HDFC Bank.
Separately, the ONS said United Kingdom house prices in December rose by an annual 2.5 percent, the smallest increase since July 2013.