India's exports in December rose an annual 36.4% to $22.5 billion, while imports for the month fell 11.1% on the year to $25.1 billion, government data released on Tuesday showed.
India's trade deficit in December narrowed to $2.6 billion compared with $8.9 billion in November.
The April-December exports rose an annual 29.5% to $164.7 billion.
Last August, India's trade deficit had widened to a 23-month high of $13.06 billion and trade secretary Rahul Khullar had said it could touch $135 billion in the current fiscal year to March, higher than his earlier forecast of $120 billion.
But, since then, the growth in imports has slowed sharply, easing pressure on the current account deficit.
Khullar, who released December's provisional figures in early January, said the trade deficit was now at its lowest in three years while exports were at their highest in 33 months.
A slowdown in industrial growth towards the end of 2010, combined with a rise in demand from India's traditional export destinations in Europe and the United States were likely reasons for the narrowed trade deficit, said N R Bhanumurthy, an economist at the National Institute of Public Finance and Policy.
"The capacity expansion by domestic industry may be tapering out," Bhanumurthy said. Asia's third-largest economy is targeting close to 15% export growth in the current fiscal year.