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Provisions of Financial Emergency in India

Part XVIII (Article 352-360) of the Constitution of Indian talks about the Emergency Provisions. Only the President of India has the power to impose emergency in the country after the approval of the cabinet. The provisions of emergency are taken from the Weimar Constitution of Germany.

There are 3 types of emergency in India. They are:

  1. National Emergency (Art. 352)
  2. State Emergency or President’s Rule (Art. 356)
  3. Financial Emergency (Art. 360)

As per article 360 (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.

The authority to impose such emergency is with the President only. However, this does not exempt the President’s power from judicial review. The 44th Amendment, 1978 (also known as Corrective Amendment) says that the top court has the power to review the declaration of Financial Emergency.

Within two months of its issuance, a declaration of financial emergency must be approved by a simple majority in both the Houses of Parliament i.e. Lok Sabha and Rajya Sabha. If the Lok Sabha is dissolved, the Rajya Sabha may approve it, but the Lok Sabha must approve it within 30 days after its reconstitution.

Once the declaration is approved by both the Houses it lasts indefinitely (no maximum period) without the need for further legislative approvals. This proclamation may also be revoked by the president at any time without the consent of parliament.

The Implications of the Financial Emergency:

  1. The Union gets the power to give financial orders to the states based on its own policies.
  2. The President may order the States to limit the salary, and allowances of government employees.
  3. Money bills and other financial bills can be reserved, that come up for review by the President after passing through the state legislature.
  4. The President has the authority to order the reduction of the salaries and allowances of the Central Government employees, including the Supreme Court and High Court judges.
Financial Emergency has never been imposed in India till date.

The Indian Economic Crisis of 1991

The crisis of 1991, was the serious financial crisis in the history of India. The Indian economy was in a state of flux. The 1980s saw significant and increasing fiscal imbalances, which contributed to the economic crisis. The federal government’s and states’ combined cumulative fiscal deficits increased dramatically.

India’s foreign exchange reserves had depleted to the point that it could only fund three weeks’ worth of imports, because of this, the Indian rupee was devaluated sharply. The exchange rate of India was severely adjusted in the mid-1991.

But even in such a tough situation which took India to the brink of bankruptcy, financial Emergency was not declared. While this situation posed a classic cause for calling a financial emergency, it was averted by restructuring and devaluing the rupee.

Before the crisis of 1991, during the Prime Minister Chandra Shekhar’s tenure, a condition requiring the declaration of financial emergency did arise in 1990 to 1991, but again it was prevented by selling off India’s gold reserves.

COVID-19 Crisis

During the lockdown in March 2020, the Center for Accountability and Systemic Change (CASC) filed a writ petition in the form of Public Interest Litigation, requesting that a financial emergency be declared as a result of the Covid-19 outbreak. However, the plea was rejected on the grounds that though courts have special authority, the law of separation of powers mandates that the president determine the viability of a financial emergency.

The President has the authority to declare the financial emergency, the Supreme Court can only review such declaration. The petition stated that:
covid-19 is the country’s most serious emergency since independence, and it must be handled in accordance with constitutional laws by a joint command between the Union and state governments. It would help in the recovery of the economy after the lockdown is over.

But even the most serious emergency of the country did not lead to declaration of Financial Emergency.

Criticism
The Centre gains complete power over states in financial matters during the operation of a financial emergency, posing a threat to the state’s financial sovereignty which is contrary to the country’s federal character. The president may also become a tyrant.

Dr. B. R. Ambedkar also agreed while defending the emergency provisions that these powers can be violated or misused. He said, “I do not altogether deny that there is a possibility of the Articles being abused or employed for political purposes.”

Conclusion
These provisions were given with the objective of preserving the dignity of the constitution. The aim of power accumulation is to protect the constitutional order, not to destroy it. The Emergency Provisions improve the federal government’s ability to function. It is the Union's responsibility to safeguard the constituent units. As the Federal Head, the President is thereby endowed with emergency powers in order to safeguard the Union of India's federal structure.

As occurred in many countries during the popular World Economic Depression of the 1930s, economic recession can be easily averted by financial emergency provisions.

References:
  • The Constitution of India
  • https://indiankanoon.org/doc/1850059/
  • SC adjourns plea seeking declaration of financial emergency due to coronavirus lockdown', The Hindu, (1 April, 2020), available at https://www.thehindu.com/news/national/sc-adjourns-plea-seeking-declaration-of-financial-emergency-due-to-coronavirus-lockdown/article31230011.ece
  • Siddharth Sonkar and Aditya Prasanna Bhattacharya, 'Plea asks SC to impose Financial Emergency due to Covid-19 outbreak: Court can't intervene to such extent, it can only ask to direct the Centre', (6 April, 2020), available at https://www.firstpost.com/india/coronavirus-outbreak-plea-asks-sc-to-impose-financial-emergency-due-to-covid-19-outbreak-court-cant-intervene-to-such-extent-it-can-only-ask-not-direct-centre-8234041.html
  • Aarushi Gupta, 'Financial Emergency: Not Need of the Hour', Jurist, (22 April, 2020), available at https://www.jurist.org/commentary/2020/04/aarushi-gupta-financial-emergency-india/

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