* Q3 current account gap at $3.4 bln vs $300 mln in Q2
* July-Sept balance of payment surplus at $8.5 bln
* Indian rupee seen falling gradually, C/A gap "comfortable"
(Updates with quote, details, background)
By Suvashree Choudhury and Abhirup Roy
MUMBAI, Dec 13 India's current account deficit
widened in July-September from the previous quarter
after an increase in imports but it remains well below levels
posted in 2015, central bank data showed on Tuesday.
India posted a current account deficit of $3.4
billion, or 0.6 percent of gross domestic product, in the
July-September quarter, wider than the $300 million or 0.1
percent of GDP posted in the previous quarter.
But it compares with a deficit of $8.5 billion, or 1.7
percent of GDP, posted in July-September last year, and is
likely to comfort investors as emerging markets face a period of
uncertainty due to expected rate hikes by the U.S. Federal
India also said the balance of payments was at a
surplus of $8.5 billion, compared with a deficit of $900 million
a year ago.
"Core imports increased sharply in July-September, pushing
the deficit higher, to still comfortable levels," said Abhishek
Upadyay, economist at ICICI Securities Primary Dealership.
"Current account deficit for the entire fiscal will be
closer to 0.5 percent of GDP, which can be funded easily via
stable flows such as foreign direct investments."
Although India has not been immune to foreign investor
selling since the election of Donald Trump as U.S. president
sparked a shift of flows from emerging markets into the United
States, analysts believe the country is among the better placed
in emerging markets.
BANK NOTE REFORM
Gross domestic product is also growing at the fastest pace
among large economies, though analysts fear India will suffer
from its unexpected move to ditch higher-valued bank notes.
India's improved standing contrasts with 2013, when fears of
Fed tightening sparked a sell-off in emerging markets that hit
the country hard, sparking its worst currency crisis in more
than two decades.
But risks remain to the current account deficit if the
country's demonetisation hits economic growth more than
expected, sparking more potential foreign investor outflows,
though that could be offset by reduced imports.
"If oil prices don't rise sharply, imports will remain under
control and that will help the current account deficit to also
remain near zero percent of GDP," said an analyst with a private
bank who asked not to be named.
Dollar outflows stood at $4.7 billion in November and this
month so far total $2.3 billion.
Outflows could also hit the rupee, which briefly
touched a record low of 68.8650 last month, and is expected to
weaken more as it remains about 11 percent over-valued in real
effective exchange rate terms compared to its trading partners.
(Writing by Rafael Nam; Editing by Gareth Jones)