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The Current Account Deficit is expected to fall by almost 50% to $45 billion in the current financial year following restrictions on gold imports and the narrowing of trade deficit.
"CAD will be between $40-45 billion and there will also be an accretion of $10 billion to forex reserves during this fiscal," a top finance ministry official told PTI.
The Reserve Bank had last month projected CAD to be at less than $50 billion or 2.5%, down from $88.2 billion or 4.8% of GDP in 2012-13.
The official expressed the confidence that there will be an accretion to foreign exchange reserves as FII inflows have been quite robust.
"FII inflows have been quite robust in this fiscal which has helped in containing the CAD. There has been an improvement in trade deficit on account of better performance of exports," the official said.
India's foreign exchange reserve as on January 31 stood at $291 billion. Besides, Foreign Institutional Investors have invested Rs 56,560 crore in equities so far in the current fiscal, ending March 31.
CAD had touched a record high of $88.2 billion in 2012-13. However, following a series of measures by both the RBI and the government, it is likely to drop drastically.
In the first half (April-September) of 2013-14, CAD narrowed to $26.9 billion (3.1%), from $37.9 billion (4.5%) in the first half of 2012-13.
The government hiked import duty thrice last year to 10% on gold imports in wake of high CAD which in turn was impacting the value of the rupee. The Reserve Bank too imposed a series of curbs to restrict gold imports.
Gold imports, which touched a high of 162 tonnes in May, fell to 19.3 tonnes in November.
In value terms, gold and silver imports in April-December period declined 30.3% to $27.3 billion from $39.2 billion during the same period a year earlier.
Meanwhile, for the April-December period, exports aggregated to $230.3 billion, and imports to $340.3 billion, with the trade deficit at $110 billion.
It was $147 billion in the same period of 2013-13 fiscal.
