India's current account deficit came down to $8.2 billion -- or 1.6 percent of the gross domestic product -- in the third quarter ended December 2014, compared to $10.1 billion -- or 2 percent of GDP -- in the previous quarter, it was announced on Tuesday.
The CAD had reached $4.2 billion, or 0.9 percent of the GDP in the corresponding period in the previous year, the Reserve Bank said.
The balance of payments, at a surplus of $13.2 billion during the quarter in question, was almost double the $6.9 billion surplus in the previous quarter on the back of a higher growth in merchandise exports, a marginal rise in merchandise imports and a sizeable increase in net financial flows.
The trade deficit widened in the third quarter to $39.2 billion, from $38.6 billion a quarter ago, on account of a sharper decline in merchandise exports than in merchandise imports.
The trade deficit in the October-December period widened slightly to $39.2 billion.
Foreign exchange reserves stood at $31.3 billion in April-December 2014 as compared with $8.4 billion in the same period of 2013.
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The RBI report released here on Tuesday said the outlook for the external sector is perhaps the most favourable since the 2008 global financial crisis.
"Assuming a further moderation in average annual price of crude petroleum and other products, the current account deficit is estimated at about 1.3 percent of GDP for 2014-15 and less than 1 percent of GDP in 2015-16," it said.
"Moderated gold imports will also help sustain a manageable current account deficit. Since the elimination of restrictions on gold in November, gold imports have fallen well below the elevated levels seen in 2013," it said.
According to the World Gold Council, 244 tonnes of the metal were imported during the October-December quarter.
The RBI report cautioned that renewed financial market volatility in response to US Federal Reserve raising interest rates expected later this year, possible turmoil in the euro zone, a surge in oil prices related to geo-political events and a slowly deteriorating international trade environment pose challenges to India's external stability in the next fiscal year.