Finance Minister P Chidambaram said the current account deficit would be contained under $40 billion. During the middle of the year, widening current account deficit was one of the biggest threats to macroeconomic stability and also battered the rupee, which plunged to a life-time low of 68.85 to the dollar on August 28.

But effective measures taken by the Reserve Bank of India (RBI) and the government saw the rupee rallying back over 12 per cent since then.

"The sharp contraction in imports in this fiscal has been the primary factor that has contained the trade deficit," the report said.

The trade gap has narrowed to $128.1 billion for the April-February period of the outgoing fiscal year, down from $179.9 billion for the same period last fiscal year.

"As we move ahead, exports are expected to pick up from here, but lifting of the heavy restrictions on gold imports will result in CAD getting wider in the next fiscal," it said.

"After double-digits contraction this year, import growth is expected to pick up. Gold imports will begin to rise once the restrictions on them are relaxed, and imports of oil, consumption and investment goods will pick up as GDP growth improves, resulting in a higher CAD in the next fiscal."

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