Higher tax collection and lower expenditure are likely to bring down the fiscal deficit in 2006-07, said the Reserve Bank of India in the Macroeconomic and Monetary Developments, released on Monday.

In the report, RBI said the combined gross fiscal deficit of the Central and state governments is likely to decline by one percentage point to 6.5 per cent of GDP in 2006-07 against 7.5 per cent in 2005-06.

The combined primary deficit is likely to decline to 0.8 per cent against 1.6 per cent and revenue deficit is likely to decline to 2.2 per cent against 3.1 per cent.

The process of fiscal consolidation of the Centre and States is expected to continue in 2006-07, which would lead to a lower combined debt-GDP ratio of 78.6 per cent by March 2007, against 79.5 per cent in March 2006.

The period April-May 2006 showed tax revenue of Rs 15,087 crore against Rs 8,659 crore in the same period last year. While there was an increase in corporation tax, personal income tax and customs duties, union excise duties declined over last year, said the RBI report.

Non-tax revenue improved to Rs 4,243 crore (Rs 3,285 crore) mainly on account of returns from economic services.

Total expenditure also increased to Rs 91,918 crore (Rs 59,737 crore) due to increase in interest payments, food and fertiliser subsidies, grants to states and higher non-defence capital outlay, the report said.

During April-June 2006, the secondary market yield on the 10-year Government securities increased to 7.64 per cent from 7.01 per cent.

The Central Government took recourse to Ways and Means Advances on 36 days during 2006-07 (up to July 14) as compared with only two days during the entire fiscal year 2005-06. The average WMA utilisation during 2006-07 (up to July 14) was Rs 1,370 crore against Rs 12 crore in the corresponding period last year.