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India's current account deficit narrowed in the October-December quarter, largely due to higher service exports, the central bank said on Tuesday.

The deficit was $10.5 billion, or 1.2% of GDP, in the third quarter of fiscal 2023/24, compared with $11.4 billion, or 1.3% of GDP, in the preceding quarter, which was revised upwards from $8.3 billion, or 1% of GDP.

The deficit stood at $16.8 billion or 2% in the same quarter a year ago.

The median forecast in a Reuters poll of 21 economists was for a deficit of $12.1 billion.

"Services exports grew by 5.2% on a year-on-year basis on the back of rising exports of software, business and travel services," the Reserve Bank of India said in a statement.

Net services receipts increased both sequentially and from a year ago, which helped cushion the current account deficit (CAD), the RBI said.

"Buoyancy in services exports along with a recovery in global demand suggests that CAD for 2023-24 is likely to be lower than last year," said Aditi Gupta, an economist at Bank of Baroda.

Next fiscal year, a combination of lower global rates and a pickup in global and domestic growth might push CAD higher but "within a manageable range," Gupta said.

Merchandise trade deficit widened marginally to $71.6 billion in the quarter, from $71.3 billion a year ago, the RBI said.

The merchandise trade deficit in February stood at $18.71 billion compared to $17.49 billion in January.

Private transfer receipts, which are mainly remittances by Indians employed overseas, increased 2.1% on-year to $31.4 billion.

The country's balance of payments was a surplus of $6 billion in the December quarter, compared with a surplus of $11.1 billion a year ago.

The surplus, however, widened sharply from $2.5 billion in the September quarter.