What is Financial Emergency and its Effects on the country?

The Constitution of India talks about three types of emergencies; National Emergency in Article 352, President's Rule in State is mentioned under article 356 and Financial Emergency in Article 360 of the Indian Constitution. Part XVIII of the Constitution of India contains emergency provisions from Articles 352 to 360.
Created On: Apr 10, 2020 11:37 IST
Modified On: Apr 10, 2020 11:45 IST
Financial Emergency:Meaning and effects
Financial Emergency:Meaning and effects

Economic and social activities have come to a standstill in the entire world including India due to the COVID-19 pandemic. Due to this, the financial crisis is getting worse day by day that is why Members of Parliament including; the President, the Vice-President and the Governors of states have donated 30% of their salary for the next one year into the Consolidated Fund of India.

In such a terrible situation, there is a doubt in everyone's mind whether the financial emergency can be declared in the country? However, Finance Minister Nirmala Sitharaman has ruled out this possibility.

Since a financial emergency has not been declared even once in the country, due to this, many people do not know when and under what circumstances the financial emergency can be declared in the country, what are the impacts of its implementation and who can declare it? Let us know the answers to all these questions in this article.

Types of Emergency in India

Emergency Provisions in the Indian Constitution are derived from the Constitution of Germany. The Constitution of India envisages three types of emergencies. These are;

(i) National Emergency in Article 352

(ii) President's rule in Article 356 

(iii) Financial Emergency in Article  360 

Let us now know in detail what is the financial emergency?

What is Financial Emergency and who can declare it?

If the President of India is satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened. He/she can declare the Financial Emergency on the aid and advise of the Council of Ministers.

Article 360 gives authority to the President of India to declare a financial emergency.

But keep in mind that the 44th Constitutional Amendment Act of 1978 says that the President's 'satisfaction' is not beyond judicial review. It means the Supreme Court can review the declaration of Financial Emergency.

Parliamentary Approval and Duration of the Financial Emergency

A proclamation of financial emergency must be approved by both the Houses of Parliament within two months from the date of its issue.

Once approved by both the Houses of Parliament, the Financial Emergency continues indefinitely till it is revoked. This implies two things:
 
1. Repeated Parliamentary approval is not required for its continuation. 

2. There is no maximum time limit prescribed for the operation of financial emergency

A resolution approving the proclamation of financial emergency can be passed by either House of Parliament (Lok Sabha or Rajya Sabha) only by a simple majority.

A proclamation of Financial Emergency may be revoked by the President anytime without any Parliamentary approval.

Effects of Financial Emergency

1. During the financial emergency, the executive authority of the Center expands and it can give financial orders to any state according to its own.

2. All money bills or other financial bills, that come up for the President's consideration after being passed by the state legislature, can be reserved.

3. Salaries and allowances of all or any class of persons serving in the state can be reduced. Telangana government has decided to cut the salary of its employees ranging from 10% to 75%. While there will be a 50% cut in the salary of all the pensioners in the state.

4. The President may issue directions for the reduction of salaries and allowances of;

(i) All or any class of persons serving the Union and 

(ii) The judges of the Supreme Court and the High Court

Recently, all the Members of Parliament including the President, the Vice President, and the State Governors have decided to accept a 30% pay cut for the next year.

Thus,  during the operation of a financial emergency, the Center gets full control over states in financial matters, which is a threat to the state's financial sovereignty.

Some critics say that provisions of financial emergency pose a serious threat to the financial autonomy of the states that is against the federal structure of the country.

Earlier, a serious financial crisis had arisen in India in 1991, but even then a Financial Emergency was not announced. Therefore, even at this time, the government should make a conscious decision in this regard, although the whole country stands together with the government to deal with any situation due to the COVID-19 pandemic.

 

Emergency Provisions in the Indian Constitution

Comparison between the National Emergency (352) and President’s Rule (356)

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