Q3 of 2012-13. CAD has widened mainly due to worsening trade deficit.
It further said strong capital flows have facilitated financing of CAD, resulting only in marginal draw down of reserves.
While increased FII debt investment limits may enhance inflows, they do not provide a solution to CAD financing on a sustainable basis, the RBI added.
The central bank also said that improved global liquidity and recent policy reforms have aided FII inflows, leading to a turnaround in equity markets and revival of the Initial Public Offering (IPO) market.
Referring to agricultural sector, the RBI said Rabi crop is expected to be normal despite deficient rains, but is unlikely to fully compensate for kharif deficiency.
Sowing under rabi crop has been broadly the same as the level in the previous year.
RBI on reforms: Restore investor confidence, usher in transformation
The Reserve Bank of India today said recent reforms have reduced the immediate risks for the economy but emphasised on the need for more measures to restore investor confidence.
Flagging concerns about fiscal and external imbalances in the economy, the apex bank said that more reforms are required, especially in road and power sectors, to remove the investment bottlenecks.
"The fresh round of reforms that were initiated in September 2012, after a hiatus, has reduced the immediate risks facing the Indian economy...
"On the whole it appears that the reform measures taken so far have not decisively lifted business sentiments and further action may be needed to restore confidence," RBI said in its third quarter review of Macroeconomic and Monetary Development.
The monetary policy, RBI said, could focus more on boosting growth after the reform actions get executed.
"While government has embarked on a fiscal adjustment path, staying on this course over the medium-term is necessary for providing sufficient space for monetary policy to stimulate growth," RBI said.
In the past couple of months the government has taken a host of reforms initiative including opening the multi-brand retail chain to FDI, and also the Union Cabinet has approved hiking foreign investment limits in the insurance and pension sectors.
Earlier this month, the government also allowed partial deregulation of diesel prices, besides