India's current account deficit narrowed in October-December from the previous quarter on the back of slumping oil price and analysts said it should move into surplus in early 2015 for the first time in eight years.
The deficit reached $8.2 billion, or 1.6 per cent of gross domestic product, in the October-December quarter. That was lower than the deficit of $10.1 billion, or 2.0 per cent of GDP, in the previous quarter according to Reserve Bank of India data on Tuesday.
Although wider than the $4.2 billion deficit, or 0.9 per cent of GDP, seen a year earlier, analysts said the continued slump in oil prices could see India post a current account surplus as early as the January-March quarter.
That would be India's first since January-March of 2007 and mark a remarkable comeback from the record high current account deficit of 4.8 per cent of GDP in 2012/13, which helped spark the country's worst currency crisis in more than two decades.
"India's external sector has improved significantly now," said Saugata Bhattacharya, chief economist at Axis Bank in Mumbai.
"We will see some volatility in the exchange rate going ahead as there is lot of uncertainty over Fed rate hikes. But overall India will be less impacted than other emerging markets as external debt is contained, macro fundamentals are better, and forex reserves are relatively high."
Hopes for economic reforms by Prime Minister Narendra Modi's government and the Reserve Bank of India's efforts to contain inflation have sparked a surge in foreign inflows into India.
The inflows have been accompanied by lower oil prices. Brent crude futures fell 39 percent during the October-December quarter and remain under pressure, a key factor for a country that imports nearly 80 per cent of its oil requirements.
However, one uncertainty to the current account balance is gold purchases, after India eased restrictions on gold imports in November in a bid to cut down on smuggling. India is the world's largest consumer of gold.
India has yet to release official data although analysts widely expect an increase in gold imports.
Other data on Tuesday showed India's balance of payments stood at a surplus of $13.2 billion during October-December, a fifth consecutive quarter of surplus.
The capital and financial account was also in surplus at $10 billion, according to the data.
Meanwhile, the trade deficit in the October-December period widened slightly to $39.2 billion from $38.6 billion a quarter ago.
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