Financial Emergency under Article 360 of Constitution

The Indian Constitution provides for several extraordinary measures to address crises that threaten the sovereignty, integrity, and stability of the country. One such provision is the declaration of a Financial Emergency under Article 360. While the provisions relating to National Emergency (Article 352) and President’s Rule (Article 356) have been invoked at various points in Indian history, Article 360 has never been used. 

Background and Rationale of Emergency Provisions

The concept of emergency powers in the Indian Constitution is largely borrowed from the Government of India Act, 1935. These provisions transform India’s federal structure into a unitary one during times of crisis, enabling the central government to exercise sweeping powers to protect the nation’s unity and stability. This system ensures that the country can respond effectively to emergencies, without the hindrance of federal constraints.

The three types of emergencies provided under the Constitution are:

1. National Emergency (Article 352): Triggered by war, external aggression, or armed rebellion.
2. State Emergency (President’s Rule) (Article 356): Triggered by the failure of constitutional machinery in a state.
3. Financial Emergency (Article 360): Declared when the financial stability or credit of India is threatened.

These emergency provisions are designed to safeguard India’s sovereignty, integrity, and security, as well as its democratic political system. However, among them, Financial Emergency remains a significant yet rarely invoked provision.

The Provisions of Financial Emergency (Article 360)

Article 360 of the Indian Constitution grants the President the power to declare a Financial Emergency if he or she is satisfied that the financial stability or credit of India (or any part of its territory) is under threat. The provision gives extraordinary powers to the central government to intervene in the financial affairs of the states and regulate their expenditure. This intervention may include directions for financial propriety, control over state finances, and other fiscal measures.

The text of Article 360 is as follows:

“If at any time the President is satisfied that a situation has arisen whereby the financial stability or credit of India or any part thereof is threatened, he may declare by proclamation that a financial emergency exists.”

The key aspects to note here are:

• Presidential discretion: The power to declare a Financial Emergency rests solely with the President.
• Grounds for declaration: The declaration is based on the President’s satisfaction that the nation’s financial stability or credit is under threat.
• No fixed criteria: The Constitution does not specify the exact nature of the financial crises that would trigger such a declaration. This gives the President a wide latitude in determining when to act.

Grounds for Declaration of Financial Emergency

The grounds for the declaration of a Financial Emergency are rooted in the financial instability or threat to creditworthiness of India or any part of its territory. This can arise from several factors, such as:

• Severe fiscal deficits at the central or state levels.
• Inflationary spirals leading to a loss of confidence in the national currency.
• A collapse in banking or financial institutions that could destabilise the economy.
• Economic sanctions or global market crises that severely impact the nation’s financial health.

While the Constitution does not specify a fixed set of criteria, it is clear that the President’s decision to declare a Financial Emergency should be based on a situation where the country faces a serious threat to its financial security.

The Procedure for Proclamation and Parliamentary Approval

Once the President declares a Financial Emergency, the following procedure must be followed:

1. Proclamation must be laid before Parliament: The President must lay the proclamation before both Houses of Parliament within two months of its issuance.
2. Parliamentary approval: The proclamation requires approval by simple majority (majority of members present and voting) in both Lok Sabha and Rajya Sabha.
3. Approval if Lok Sabha is dissolved: If the Lok Sabha is dissolved during the two-month window, the proclamation survives until 30 days from the first sitting of the newly constituted Lok Sabha, provided Rajya Sabha has already approved it.

This provision ensures that the decision to declare a Financial Emergency is not unilateral, and must be ratified by the people’s representatives. The simple majority requirement ensures that the decision can be taken swiftly, without complex procedural hurdles.

Duration and Revocation of Financial Emergency

Once the Financial Emergency is approved by Parliament, it remains in force indefinitely, unless revoked by the President.

• No periodic renewal is required, making the Financial Emergency a long-term measure if necessary.
• The President has the authority to revoke the declaration at any time by issuing a subsequent proclamation. This revocation does not require parliamentary approval, giving the President the flexibility to restore normalcy when the financial situation improves.

The indefinite duration of a Financial Emergency reflects the gravity of the situation it is meant to address. It ensures that the central government can maintain financial control over the states for as long as needed to restore stability.

Judicial Review and Constitutional Amendments

The question of whether the declaration of a Financial Emergency can be challenged in court has evolved through amendments to the Constitution.

• 38th Amendment (1975): This amendment made the President’s satisfaction final and conclusive, removing any possibility of judicial review.
• 44th Amendment (1978): This amendment reversed the 38th Amendment, restoring the possibility of judicial review. This means that while the President’s satisfaction is given great weight, the judiciary can examine whether the declaration is in accordance with the Constitution.

The judicial review provision ensures that the declaration of a Financial Emergency is not arbitrary and that there are checks and balances in place to protect the Constitution and the rule of law.

Implications and Impact of Financial Emergency

When a Financial Emergency is declared, the central government gains the power to intervene in state financial affairs. Some of the key powers of the Centre include:

1. Financial Propriety: The President may issue directions to states to follow specific canons of financial propriety. This could involve imposing limits on state expenditures, controlling borrowing powers, and regulating fiscal policies to ensure financial discipline.
2. Reduction of Salaries and Allowances: The President can direct the reduction of salaries and allowances of state employees, and even Union employees, including judges of the Supreme Court and High Courts.
3. Reservation of Money Bills: The President can reserve all money bills or financial bills passed by state legislatures for his consideration. This gives the Centre control over state finances and ensures that financial decisions made at the state level align with national economic interests.

These measures significantly reduce the financial autonomy of the states, and centralise control over India’s fiscal management in times of emergency. However, such powers also have the potential for misuse, especially if the financial distress is politically motivated.

The Case for Financial Emergency

Although Article 360 has never been invoked in India’s history, its potential role in managing fiscal crises is crucial. The 1991 economic crisis, for example, saw India face severe balance-of-payments issues and high inflation, yet the government did not resort to a Financial Emergency. Instead, economic reforms and international assistance were pursued.

The Financial Emergency provision remains an important safeguard against unforeseen economic challenges. While its deployment would undermine state autonomy, it serves as an essential tool to preserve the nation’s financial integrity and prevent economic collapse.

Conclusion

Article 360 of the Indian Constitution provides the central government with the power to declare a Financial Emergency, empowering it to take necessary measures to safeguard the country’s financial stability. Though it has never been invoked, the provision remains a critical constitutional safeguard in times of economic distress. 

The extensive powers vested in the central government during a Financial Emergency underscore the gravity of such a declaration, which could have profound effects on the autonomy of states and the overall governance structure. As India continues to navigate complex economic challenges, the careful application of Article 360 will be vital in maintaining fiscal stability while respecting the democratic principles embedded in the Constitution.