Here is the difference between these 3 important Concepts - RBI and Govt as explained by Dr. Y.V. Reddy Deputy Governor Reserve Bank of India  in his speech at Hyderabad on March 8, 1997) 1. [3 Concepts](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=227): Budget Deficit, monetised deficit or the net RBI credit to the Government and RBI's support in primary issues of Central Government securities. 2. The Budget Deficit is defined as the total of the net issue of Treasury Bills (at face value) - ad hoc, tap and auction - net of increase Central Government balances during the financial year. 1. Therefore, conceptually Budget Deficit is the short term financing availed of by the Central Government both from the Reserve Bank and other entities which include banks, financial institutions, State Governments, corporates and other parties. 2. In this set up, the Reserve Bank is only one of the financing units of Budget Deficit. 3. Net Reserve Bank credit to the Centre, on the other hand, includes not only the Reserve Bank's holding of T-Bills but also its holding of dated securities and rupee coins net of increase in Central Government's cash balances. In other words, the Reserve Bank's holding of T-Bills that forms a part of Budget Deficit is also a subset of the monetised deficit. 1. However, it may be noted that while the constituents of Budget Deficit are measured at face value, those of the net Reserve Bank credit to the Centre are measured at book value. This valuation difference is, however, negligible particularly for 91-day T-Bills. 2. The correlation between the Budget Deficit and the monetised deficit gets weakened at times of easy liquidity such as during the current financial year as market purchases of Government securities including T- bills have gone up substantially. 3. The purchase of Government securities by non - RBI entities reduces the monetised deficit in 3 ways : 1. directly by reducing devolvement on the Reserve Bank in auctions of T-Bills and dated securities, 2. through the sale of dated securities including repos and 3. indirectly improves the centre's cash balances and reduces the centre's recourse to ad hocs. 4. The RBI's support to primary issues of Central Government securities reflects only its support in the primary offers and net RBI credit to Government could be very different due to other factors. 1. Example: In 1993-94, RBI's support to Government was Rs.7014 crore, but, net RBI credit was only Rs.260 crores. In 1996-97, till February 14th, RBI support was Rs.12,099 crore, but, net RBI credit was only Rs.7,837 crore. Monetised deficit is one source of money supply and not the only factor affecting money supply. 5. ==This is a [[G-Secs-Primary Market#Few important metrics used in analyzing the debt|section]] on few metrics which are used in analyzing the debt profile of the governments.== ## References 1. Budget and RBI : New Directions - A [speech](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=227) by Dr. Y.V. Reddy at Hyderabad on March 8, 1997