Financial Emergency In India – Significance Of Article 360 in Indian Constitution

By BYJU'S Exam Prep

Updated on: November 14th, 2023

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.

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.
  • 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.

Duration of Financial Emergency

It is essential for both houses of Parliament to announce the financial emergency. It must be approved by the Houses within two months. In case the financial emergency decree has been put forth at a time when the Lok Sabha has dissolved the life of the proclamation increases to 30 days after the Lower House is put together, in case the Rajya Sabha has assented to it.

  • The situation of financial crisis triggers the situation of emergency. The financial emergency can remain active till the situation demands.
  • For a financial emergency to be operated, repeated Parliamentary approval is not required.
  • The maximum time limit for a financial emergency is not specified.
  • It needs to be repealed by the President to resume normal conditions. Till the time it is not repealed by the President, it will remain operational.

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.

Criticism of Financial Emergency

There have been numerous criticisms that have surrounded the financial emergency clauses. The major challenges in the financial emergency are that the Union government acquires authority over financial matters. The financial sovereignty of the state also faces vulnerability and risks. The financial autonomy of the States is also threatened by the vulnerability. The emergency provisions also put at risk the fundamental rights of the individuals.

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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