Financial Emergency (Article 360)

The Financial Emergency (Article 360) in India, as one of the three types of emergencies provided for by the Indian Constitution, remains a crucial tool in the hands of the Central Government to address any severe economic crisis or financial instability effectively. It is largely seen as an important safeguard to protect the country’s financial security, fiscal stability, and overall economic interests. This article of NEXT IAS aims to study in detail the Financial Emergency, its meaning, constitutional provisions, grounds of imposition, judicial review, impacts, and other related aspects.

Meaning of Financial Emergency

• In India, a Financial Emergency (Article 360) refers to a period when the financial stability or credit of the country or any part of its territory is threatened.
• It is a time when the fiscal autonomy of the States may be temporarily curtailed, and the financial powers of the Central government are significantly enhanced to address the perceived economic crisis.
• A Financial Emergency empowers the Central government to take swift and decisive action to safeguard the country’s financial security, fiscal stability, and overall economic interests.

Constitutional Provisions Related to Financial Emergency

Article 360 in Part XVIII of the Indian Constitution deals with the Financial Emergency. The article and its subject matter are as follows.

Articles	Subject – Matter
Article 360	Provisions as to Financial Emergency

Grounds of Declaration of Financial Emergency

Article 360 of the Indian Constitution empowers the President of India to proclaim a Financial Emergency if he/she is satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened.

Judicial Review of Financial Emergency

The 38th Amendment Act of 1975

• The 38th Constitutional Amendment Act, 1975 made the satisfaction of the President in declaring a Financial Emergency under Article 360 final and conclusive which could not be challenged in any court on any ground
• Thus, it made the proclamation of the Financial Emergency immune from Judicial Review.

The 44th Amendment Act of 1978

• The 44th Constitutional Amendment Act deleted the above provision of the 38th Constitutional Amendment Act, 1975.
• Thus, it provided that the satisfaction of the President for the proclamation of the Financial Emergency is not beyond judicial review.

Parliamentary Approval of Financial Emergency

• The proclamation of Financial Emergency in India must be approved by both Houses of Parliament within two months from the date of its issue.
• However, if a proclamation of Financial Emergency is issued at a time when Lok Sabha has been dissolved or the dissolution of Lok Sabha takes place during the period of two months without approving the proclamation then, in that case, the proclamation survives until 30 days from the first sitting of the newly constituted Lok Sabha, provided the Rajya Sabha has in the meantime approved it.

Duration of Financial Emergency

• Once approved by both Houses of Parliament, the Financial Emergency in India continues indefinitely till it is revoked.
• Thus, the following two points are to be noted w.r.t. Financial Emergency in India:
  • There is no maximum period prescribed for the operation of a Financial Emergency.
  • Repeated parliamentary approval is not required for the continuation of a Financial Emergency.

A resolution approving a proclamation of Financial Emergency in India can be passed by either House of Parliament only by a Simple Majority (the majority of 50% of members present and voting in the House).

Revocation of Financial Emergency

• A proclamation of Financial Emergency can be revoked by the President at any time by a subsequent proclamation.
  • Such a proclamation does not require the approval of the Parliament.

Effects of Financial Emergency

The consequences and effects of the Financial Emergency are as follows:

• The Executive Authority of the Center extends to giving:
  • Directions to any State to observe such canons of financial propriety as are specified by it.
  • Such other directions to any State as the President may deem necessary.
• Any such direction may include a provision requiring:
  • Reduction of salaries and allowances of all or any class of persons serving in the State.
  • Reservation of all Money bills or other Financial bills for the consideration of the President after they are passed by the State Legislature.
• The President may issue directions for the reduction of salaries and allowances of:
  • All or any class of persons serving the Union,
  • Judges of the Supreme Court and the High Court.

Thus, during a Financial Emergency, the Center acquires full control over States in financial matters.

Note: No Financial Emergency has been declared so far even though there was a financial crisis in 1991.

Conclusion

The provision for declaring a Financial Emergency is a double-edged sword. They grant the Central government the necessary authority to address economic crises, but also carry the risk of abuse and undermining the financial autonomy of the states. As India navigates evolving economic challenges, it is crucial that the provision regarding financial emergency is exercised judiciously, with robust oversight and adherence to the rule of law, to preserve the country’s fiscal stability and federal structure.

Frequently Asked Questions (FAQs)