Financial Emergency (Article 360)

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Financial Emergency (Article 360)

Financial Emergency | Article 360

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President’s Rule refers to the imposition of Central Government’s direct control over a state under Article 356 of the Constitution, when the constitutional machinery of that state has broken down.

Grounds of Declaration of Financial Emergency

Article 360 of the Indian Constitution empowers the President of India to proclaim a Financial Emergency if he or she is satisfied that a situation has arisen whereby the financial stability or credit of India or any part of its territory is threatened.
This provision allows the Union government to respond swiftly in times of economic crisis, ensuring that the stability of the nation’s finances is protected.
Scope of Presidential Satisfaction
- Initially, the 38th Constitutional Amendment Act, 1975 made the President’s satisfaction in declaring a Financial Emergency final and conclusive, meaning it could not be challenged in any court.
- However, this was changed by the 44th Amendment Act, 1978, which removed the bar on judicial review. As a result, the President’s satisfaction is no longer immune from scrutiny. The courts can now review whether the conditions for declaring a Financial Emergency actually existed, ensuring constitutional checks and balances remain intact.

Parliamentary Approval and Duration of Financial Emergency

Once the President of India issues a proclamation under Article 360 declaring a Financial Emergency, it must be laid before both Houses of Parliament for approval.
Timeframe for Parliamentary Approval
- The proclamation must be approved by both the Lok Sabha and the Rajya Sabha within two months from the date of its issue.
- If the Lok Sabha is dissolved at the time of the proclamation, or is dissolved before approving it, the proclamation remains in force until 30 days from the first sitting of the newly reconstituted Lok Sabha — provided the Rajya Sabha has approved it in the meantime.
Duration and Continuation
- Once approved by both Houses of Parliament, a Financial Emergency continues indefinitely until it is revoked by the President. This implies:
  - No maximum time limit is prescribed for its operation.
  - Repeated Parliamentary approval is not required for its continuation (unlike in the case of National or President’s Rule).
Mode of Approval
- The resolution approving a Financial Emergency must be passed by a simple majority — i.e., a majority of members present and voting in each House.
Revocation
- The President can revoke the proclamation of Financial Emergency at any time by issuing another proclamation.
- Parliamentary approval is not required for such a revocation.

Effects of Financial Emergency

When a Financial Emergency is declared under Article 360 of the Indian Constitution, it drastically alters the financial autonomy of both the Centre and the States. The following consequences come into effect:

Centre’s Executive Authority Over States

The executive power of the Centre extends to:
- Issuing directions to any state to observe financial propriety.
- Giving any other directions deemed necessary by the President.
- These directions may include:
  - Reduction in salaries and allowances of all or any class of persons serving in the state.
  - Requiring that all Money Bills or other Financial Bills passed by the state legislature be reserved for the President’s consideration.

Reduction of Salaries at the Union Level

The President may also issue directions for reduction in salaries and allowances of:
- All or any class of persons serving under the Union Government.
- Judges of the Supreme Court and High Courts.
This gives the Centre sweeping financial control, even over the judiciary and central bureaucracy.

Impact on Federal Structure

During a Financial Emergency, the Centre acquires complete control over financial matters of the states, severely undermining the federal character of the Constitution.

Views of Constitution Makers

H.N. Kunzru, a member of the Constituent Assembly, warned that these provisions posed a serious threat to the financial autonomy of states.
Dr. B.R. Ambedkar, defending the provision, stated:
“This Article more or less follows the pattern of what is called the National Recovery Act of the United States passed in 1933, which gave the President power to make similar provisions in order to remove the difficulties, both economic and financial, that had overtaken the American people, as a result of the Great Depression.”

No Instance of Use So Far

Despite facing a major economic crisis in 1991, no Financial Emergency has ever been declared in India to date

Constitutional Provisions

Article 360 in Constitution of India

Provisions as to financial emergency

(1)If the President is satisfied that a situation has arisen whereby the financial stability or credit of India or of any part of the territory thereof is threatened, he may by a Proclamation make a declaration to that effect.

(2)A Proclamation issued under clause (1)–

(a)may be revoked or varied by a subsequent Proclamation;

(b)shall be laid before each House of Parliament;

(c)shall cease to operate at the expiration of two months unless before the expiration of that period it has been approved by resolutions of both Houses of Parliament:

Provided that if any such Proclamation is issued at a time when the House of the People has been dissolved or the dissolution of the House of the People takes place during the period of two months referred to in sub-clause (c), and if a resolution approving the Proclamation has been passed by the Council of States, but no resolution with respect to such Proclamation has been passed by the House of the People before the expiration of that period, the Proclamation shall cease to operate at the expiration of thirty days from the date on which the House of the People first sits after its reconstitution, unless before the expiration of the said period of thirty days a resolution approving the Proclamation has been also passed by the House of the People.

(3)During the period any such Proclamation as is mentioned in clause (1) is in operation, the executive authority of the Union shall extend to the giving of directions to any State to observe such canons of financial propriety as may be specified in the directions, and to the giving of such other directions as the President may deem necessary and adequate for the purpose.

(4)Notwithstanding anything in this Constitution–

(a)any such direction may include–

(i)a provision requiring the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of a State;

(ii)a provision requiring all Money Bills or other Bills to which the provisions of article 207 apply to be reserved for the consideration of the President after they are passed by the Legislature of the State;

(b)it shall be competent for the President during the period any Proclamation issued under this article is in operation to issue directions for the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of the Union including the Judges of the Supreme Court and the High Courts.

The provision of Financial Emergency under Article 360 serves as a constitutional tool to protect the economic and financial stability of India. Though never invoked, its presence highlights the foresight of the Constitution’s framers in preparing for unforeseen fiscal crises. However, the wide-ranging powers it confers upon the Centre over states and even over judiciary raises concerns about federalism and judicial independence. Hence, the provision is to be used only as a last resort, balancing the need for national financial discipline with the autonomy of state governments.

FAQs

1. What is a Financial Emergency?

A Financial Emergency is a situation declared under Article 360 of the Constitution when the financial stability or credit of India or any part thereof is threatened.

2. Has India ever declared a Financial Emergency?

No, despite the 1991 Balance of Payments crisis, India has never declared a Financial Emergency till date.

3. Who declares Financial Emergency and on what grounds?

The President of India declares it when satisfied that the financial stability or credit of India or any part of its territory is threatened.

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