Mumbai: The combined fiscal deficit of Union and state governments in India will come down to 6.5 per cent - still way off the 3.8 per cent projected by the government - during 2006-07 from 7.5 per cent last fiscal, rating agency Fitch has said.

Fitch Rating, which recently raised India's rating to investment grade, said economic expansion will boost tax revenue and help reduce the government's budget deficit.

Although, the Union government has projected a fall in fiscal deficit to 3.8 per cent of GDP this fiscal, the Centre's fiscal deficit already stood at Rs77,740 crore (Rs777.40 billion) during April-June 2006-07, that is, more than 52 per cent of the projected figure of Rs148, 686 crore (Rs1486.86 billion) for the whole of 2006-07.

Earlier, Fitch had also raised the country's foreign and local currency issuer default ratings (IDRs). While it raised India's long-term IDR to BBB- (BBB minus) from BB+ (BB plus) both with stable outlook, it raised the short-term foreign currency IDR to F3 from B. Fitch upgraded the country ceiling to BBB- (BBB minus) from BB+. This is one-notch above the rating by S&P (BB+/positive) but in line with Moody's (Baa3/stable). Fitch had upgraded India to BB+ (BB plus) in January 2004.

Fitch attributes the upgrades to the country's impressive economic growth, external balance and improvement in public finance. Economic growth supported by huge investments in infrastructure will make all the difference, Fitch said.