Food inflation likely to drop in coming months on good harvest: Govt report

India's food inflation is likely to fall in the coming months thanks to good harvests after monsoon rains replenished water levels in reservoirs, according to a government report on Thursday.

The steady progress in the southwest monsoon has supported summer sown crops,  finance ministry said in its monthly economic report.

"Replenishing water levels in reservoirs bodes well for the current kharif (summer-sown) and upcoming rabi (winter-sown) crop production. This will further aid in reducing food inflation in the coming months," the report said.

India's retail inflation fell to a near five-year low of 3.54 per cent in July, largely due to a base effect as food prices eased from previous highs. Food inflation, which accounts for nearly half of retail inflation, eased to 5.42 per cent in July from 9.36 per cent in June.

Earlier this week, the country's central bank said India would have to adopt a more cautious approach to monetary policy if high food prices persisted and threatened to spill over into more generalised price inflation.

The government report said stronger global demand had boosted India's goods exports but imports had also risen due to strong domestic demand. India's goods trade deficit was $23.5 billion in July, higher than economists' expectations.