Financial Emergency In India- Consequences, Significance Of Article 360

By K Balaji|Updated : November 3rd, 2022

The clauses and provisions of financial emergency in India have been encoded in Article 360. However, the Constitution has not set a clear basis for calling this emergency as to date the situation has never been raised in India. If financial stability and credit status are threatened, a financial emergency can be imposed. On 24th March there was a threat of the country being plunged into a state of Financial Emergency Article 360 owing to the economic slowdown. This was all circulated during the pandemic imposed due to the massive explosion of COVID-19 in the whole of India. But the question was, what exactly is the state of Financial Emergency, and what are the implications, sources, scope, and repercussions of the same.

If these measures are advised by the Ministerial Council, the power to impose the Financial Emergency lies only with the President after which the final decision lies with the government. However, the judgment can be challenged in court. The article furnishes complete details pertaining to a financial emergency. The aspirants preparing for the UPSC exam can get access to the PDF and prepare for this topic comprehensively.

Table of Content

What is Financial Emergency Article 360?

The Financial Emergency Article 360 of the Constitution of India empowers the President to declare an economic emergency. The Parliament also has a say in the event of a financial emergency. A financial emergency in India has not been declared to date.

Financial Emergency UPSC PDF

  • Congress must approve this state of emergency within two months from the date of the imposition.
  • Therefore, if this state of emergency would be declared on March 24, Prime Minister Narendra Modi would have to obtain parliamentary approval in both houses by May 24.
  • If the Lok Sabha disbands for any reason, Rajya Sabha will need to approve the emergency.
  • Lok Sabha approval must take place within 30 days of the election of new Lok Sabha members.
  • If approved, the financial emergency would stay until the president announces that it should be lifted. Dismissal does not require parliamentary approval.

Reasons For Declaration Of Financial Emergency

There is no maximum period specified for the operation. The constitution does not require the approval of a new parliament. There are numerous reasons for declaring a financial emergency article by the President. Check here the list of the reasons that have been listed here-

  1. When the President is convinced that a situation has arisen that threatens the financial stability or creditworthiness of India or some parts of India's territory.
  2. Amendment 38 of 1975 states that the President's declaration of a financial emergency is final and cannot be challenged in any court for any reason.
  3. Article 44 Amendment Act of 1978 removes the provisions added by the Article 38 Amendment Act of 1975. This means that the president's satisfaction is not exempt from judicial review (that is, you can challenge it in court).

Significance Of Article 360

Introduced by PhD BR Ambedkar the act of financial emergency provisions has been made to the Constitutional Assembly influenced by the Great Depression of the 1930s, wherein according to the National Recovery Act 1933 of the United States, the President was empowered to make such provisions of Article 360 in the country. Situations such as recessions and other financial crises can be easily avoided with an emergency response plan.

The financial emergency clause was created such a provision to counter the economic threat that the country may face. India experienced a financial crisis in 1991 and fought hunger and war in 1965, but India did not even invoke the clause of Article 360.

Declaring a financial emergency gives the country a bad name. India is one of the biggest and most significant economies in the world. A state of financial emergency will affect its credibility and its trading partners.

Consequences of Financial Emergency

The result of such a declaration is the Allied Government issues a Directive to each state to comply with the rules of financial validity outlined in the Directive.

  • The President can instruct the state to reduce salaries and allowances for all or specific groups of employees who work in the current situation.
  • Banknotes or other fiscal bills are retained for review by the President after being passed by the Legislature.
  • The President may issue orders to reduce salaries and allowances for those who work in connection with the work of the Union, including the Supreme Court and judges of the Supreme Court.
  • The federal government gains full authority over the state in financial affairs during times of financial difficulty. This jeopardizes the state's financial sovereignty.
  • A financial emergency is a threat to the well-being of the country and to the financial autonomy of all states of India.

Financial Emergency For UPSC Exam

The aspirants preparing for the UPSC exam must be well-versed with complete knowledge of the pivotal topics. The financial emergency topic frames an integral and eminent part of the UPSC syllabus. The candidates can practice the UPSC previous year papers to get enlightened about the types and patterns of questions asked in the exam. This topic is covered under the Indian Polity syllabus of the IAS exam.

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FAQS on Financial Emergency In India

  • The financial emergency in the Indian constitution can be declared in the case of financial instability and posing threats to credit status. It can be declared by the President mandated by Parliamentary approval. The provisions of the financial emergency have been enclosed in Article 360 of the Indian constitution.

  • The provisions of the financial emergency have been enclosed in Article 360 of the Indian Constitution. It encodes the rights of the President to declare a financial emergency. It mainly comprises three provisions such as the grounds of declaration, the 44th Amendment Act of 1978, 38th Amendment Act of 1975. The President can invoke a financial emergency, but it needs parliamentary approval.

  • Financial Emergency Article 360 has never been used in India. However, in 1991, and 2020 it was a difficult situation and India was on the verge of declaring a financial emergency due to the financial crisis but it was not declared at that time. Financial instability and unstable credit status can lead to the declaration of a financial emergency by the President.

  • The state's financial autonomy can be wiped out, and the president and union leaders can exercise some constitutional dictatorship concerns regarding the declaration of Financial Emergency Article 360. The financial emergency influences and impacts the numerous niches of the economy.

  • The President may also issue directives to reduce salaries and allowances for central government officials, including the Supreme Court and judges of the Supreme Court. The state’s financial autonomy is also affected in case of a financial emergency.

  • Yes, the 44th Amendment Act of 1978 allows judicial reviews to approve Financial Emergency Article 360 in the country. Article 360 illustrates the rights of the President to declare a financial emergency.

  • A resolution approving a declaration of Financial Emergency Article 360 is passed only by a simple majority of the Houses of both Parliaments which means, most of the members of that meeting room attend and vote. Article 38 declared the financial emergency declared by the President to be unchallengeable, however, Article 44 mandated Parliamentary approval.

  • A financial emergency can arise in cases when the financial stability and creditworthiness of the country are under threat. The President possesses the right to declare a financial emergency by parliamentary approval. It impacts and influences numerous sectors of the economy. India was on the verge of declaring of financial emergency during the pandemic, however, the clause was not invoked.

  • Article 360 encoding the provisions and clauses of the financial emergency, was established by Dr B.R Ambedkar. The Great Depression of the 1930s leads to the establishment of Article 360. It possesses an emergency rescue plan that can be implemented in cases of financial instability and recessions. The financial emergency status affects the credibility of the state.

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