Part XVIII of our Indian Constitution puts forth certain situations wherein
an emergency can be declared. Out of all the three forms of emergency, the
emergency declared on failure of constitutional machinery is frequent.
Declaration of national emergency has become dormant since 1977 and our
republic has not seen any financial emergency as of yet. In the past few
months, the whole nation has come to a standstill due to the spread of
COVID-19 pandemic. A truly unprecedented situation has occurred which has
affected almost every industry and household drastically.
The Constitution of India under Article 360 provides for the provisions of
Financial Emergency. The condition precedent for invoking the said provision
as enshrined in our constitution is- 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, then financial emergency
may be proclaimed. Article 360 further enables the president to proclaim a
Financial Emergency upon satisfaction that the financial stability or credit
of India is under threat. The satisfaction of the president in reality means
the satisfaction arrived at on the aid and advice of the Council of
Ministers, as per settled judicial position to this effect.
In the year 1991, there was a Balance of Payment crisis which led to
a situation where the then Government was on the verge of imposing a
Financial Emergency. The condition of Indian economy was volatile however,
with much needed and timely intervention of the then government, the
situation was somehow controlled. India thus was saved from the state of
In such circumstances, there were three possible solutions:
- Minting - Releasing of new currency notes. This could have possibly
led to an inflation.
- International Help – Considering the fact that India was already
under a lot of loan, this did not seem like a feasible option.
- Help from Domestic Sources – Due to inflation and low economy, even
this option was struck out.
Subsequently, the then Government headed by Late P.V. Narasimha Rao as
the Prime Minister, brought out the policy of Liberalisation, Privatisation
and Globalisation (LPG). With this reform, a strategy was formulated wherein
there was an abolition on all the export subsidies, trade policy reforms and
industrial policy reforms. there were liberalised regulations and licensing
controls on exports and foreign direct investments were brought into force
so as to bring about Public Sector Reforms. Apart from export subsidies,
there was a complete abolition imposed on industrial licensing as well.
Even on the political forefront, this was a phase which re-shaped the
structure of Indian economy. This also created a mark of identity for Dr.
Manmohan Singh, the then Finance Minister.
It is to be always kept in mind that the declaration of emergency is always
a last resort. There is a reason that the Government has refrained from
declaring emergency all these years. Before one can actually declare an
emergency, it needs to be ensured that all the available legal remedies have
been exhausted and there is no other way out. The complexities of our
federal structure and socio-political dimensions are also important subjects
that precedes any such event.
Section 2(d) of the Disaster Management Act, 2005 defines a disaster as:
means a catastrophe, mishap, calamity or grave occurrence in any
area, arising from natural or man-made causes, or by accident or negligence
which results in substantial loss of life or human suffering or damage to, and
destruction of, property, or damage to, or degradation of, environment, and is
of such a nature or magnitude as to be beyond the coping capacity of the
community of the affected area.
If we take the situation of the current pandemic into consideration,
COVID-19 can conveniently be fit into the category of a disaster' covering
the criteria grave occurrence
, natural cause
loss of life
and beyond coping capacity
On the financial forefront, the entire nation is undergoing a huge loss on
daily basis. The world economy seems to be in ICU and Indian economy is not
an exception. The unprecedented calamity literally forced government to
announce and enforce lockdown, which was the only remedy to control the
damage which this contagious COVID-19 had potential of in terms of taking
toll on lives of people. Though, with lockdown the government seems to have
contained the spread of this disease however, the lockdown has its own
costs- on the economy.
The economy is in distress mode and even best of the policy makers and
finest economists are not yet in position to ascertain what damage, in terms
of economy, this lockdown has caused and would continue to cause in coming
years. It is interesting to note here that although the finance minister
Nirmala Sitharaman had ruled out imposition of financial emergency however,
certain action on part of government speaks of undeclared financial
emergency albeit, not in explicit terms.
The parliament resolving to cut the salaries of Members of Parliament,
government announcement temporarily halting the increment on DA of
government employees and several other austerity measures announced by union
government as well some of the state governments are itself self-evident
arguments about the economic catastrophe which is looming at present.
A petition has been filed before the Supreme Court of India by Centre for
Accountability & Systematic Change seeking imposition of Financial
Emergency. The Apex Court has adjourned the matter for two weeks. It would
be interesting to see the outcome of the said proceedings currently pending
before the Apex Court.
Per contra, it could be argued that imposition of financial emergency would
have its own adverse consequences on economy let aside the political-legal
complex challenges under our federal structure. The government is currently
faced with dual challenge- to save lives of its people and also to safeguard
economic interests of nation. The merits and demerits of financial emergency
is a subject of lengthy and non-ending debates as those who support and
those who oppose the financial emergency have their own arguments.
That said, the current crisis which our country is facing has to be dealt
with strong and effective policies and imposition of financial emergency
could be one of such moves. The government could not simply shut its eyes on
large scale inequality prevailing in our society. This pandemic has only
added woes to much unequalised distribution of wealth in India. We have to
understand the agony and pain of marginalized strata of our society.
Whenever this lockdown is lifted, and businesses are back to normal- things
would certainly not be conducive. The unholy gap between have' and have not'
would further result in damaging the prospects of the country. The
government has to come up with certain set of well formulated policies to
control the damage which this pandemic would cause to economy. Be it
imposition of financial emergency or not, is the matter which should be left
to the wisdom of government.
Written By: Dr Farrukh Khan
is an Advocate and Managing Partner of
Law Firm- Diwan Advocates. Somya Mishra is an Advocate, working with Diwan