Article 360 empowers the president to proclaim a Financial Emergency if he 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. So far, no Financial Emergency has been declared in India. There have been questions on the topic Financial Emergency in the UPSC Prelims earlier, candidates need to be well acquainted with the facts such as under which article, which type of emergency is declared and on what grounds. This article is useful for UPSC Prelims as well as Mains 2024.

Financial Emergency - Grounds Of Declaration

• Article 360 empowers the president to proclaim a Financial Emergency.
• Grounds of Proclamation: if the President 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.
• Under such a situation, the executive and legislative powers will go to the centre.
• Like the other two types of emergencies, it has also to be approved by the Parliament.
• 38th Amendment act of 1975: The Amendment Act made that the proclamation of financial emergency cannot be questioned in the court of law.
• 44th Amendment act of 1978: The amendment Act deleted the provision inserted by the 38th Amendment Act of 1975, which suggests that the president's satisfaction is not immune from judicial review.
• Now the Financial emergency is under Judicial review.

Parliamentary Approval and Duration of Financial Emergency

• A proclamation declaring a financial emergency must be approved by both the Houses of Parliament within two months from the date of its issue.
• However, if the proclamation of Financial Emergency is issued at a time when the Lok Sabha has been dissolved or the dissolution of the Lok Sabha takes place during the period of two months without approving the proclamation, then the proclamation survives until 30 days from the first sitting of the Lok Sabha after its reconstitution, provided the Rajya Sabha has in the meantime approved it.
• Financial Emergency can operate as long as the situation demands and may be revoked by a subsequent proclamation.
• The proclamation once approved by the Parliament with simple majority continues indefinitely till it is revoked. This means
  • There is no maximum period
  • There is no repeated parliamentary approval
• A resolution approving the proclamation of financial emergency can be passed by either House of Parliament only by a simple majority, that is, a majority of the members of that house present and voting.
• Revocation: The Financial Emergency is revoked by the President at any time by a subsequent proclamation.

Effects of Financial Emergency

The proclamation of Financial Emergency may have the following consequences:

• The Union Government may give direction to any of the States regarding financial matters.
• The President may ask the States to reduce the salaries and allowances of all or any class of persons in government service.
• The President may ask the States to reserve all the money bills for the consideration of the Parliament after they have been passed by the State Legislature.
• The President may also give directions for the reduction of salaries and allowances of the Central Government employees including the Judges of the Supreme Court and the High Courts.

Comparison Between Different Types of Emergencies

Conclusion

Financial emergencies can arise from various factors such as economic downturns, external shocks, natural disasters, or geopolitical events.Therefore Constitution makers have made the provisions to deal with such unforeseen circumstances.Governments typically respond to such emergencies with policy measures, fiscal stimulus, and other interventions to stabilize the economy.

FAQs

MCQs

1. Under which article of the Indian Constitution can a Financial Emergency be declared?

A) Article 352
B) Article 356
C) Article 360
D) Article 365

2. What is the maximum period within which the declaration of a Financial Emergency must be approved by Parliament?

A) 1 month
B) 6 months
C) 2 months
D) 3 months

3. Which of the following powers does the Centre acquire during a Financial Emergency?

A) Dissolution of state legislatures
B) Dismissal of state governments
C) Control over state financial matters
D) Command of the armed forces

4. Which of the following cannot be done during a Financial Emergency?

A) Salaries of judges can be reduced
B) State legislatures can be dissolved
C) State financial bills can be sent to the Centre
D) Salaries of government officials can be reduced

5. Which of the following scenarios could lead to the declaration of a Financial Emergency?

A) National security threat
B) Natural disaster
C) Economic instability
D) Political instability

GS Mains Questions and Answers

Q1: Analyze the implications of a Financial Emergency on the federal structure of India.

Answer: A Financial Emergency under Article 360 can have significant implications for India's federal structure. It allows the Centre to take control over state financial matters, which could undermine the autonomy of state governments. During a Financial Emergency, the salaries of state government officials, including judges, may be reduced, and state financial decisions may require approval from the Centre. Although a Financial Emergency has never been declared in India, its potential to centralize financial control raises concerns about weakening state autonomy and affecting the balance of power in India's federal structure.

Q2: Discuss the conditions under which a Financial Emergency can be declared and its potential impact on the judiciary.

Answer: A Financial Emergency can be declared under Article 360 when India's financial stability or credit is at risk. The impact on the judiciary is significant, as the salaries and allowances of judges of the Supreme Court and High Courts can be reduced. This power can raise questions about judicial independence, as it may be perceived as a way for the executive to exert pressure on the judiciary. However, such measures are deemed necessary to restore financial stability in extreme situations. The checks on this provision include the requirement for parliamentary approval within two months of the declaration.

Q3: Evaluate why India has never declared a Financial Emergency despite facing several economic crises.

Answer: India has experienced severe economic crises, such as the 1991 balance of payments crisis, yet a Financial Emergency has never been declared. This could be due to the far-reaching implications of such an emergency, including the centralization of power over state finances and the potential reduction of salaries of government officials and judges. Additionally, political considerations and the fear of public backlash might deter the government from invoking Article 360. Instead, other fiscal measures, such as economic reforms and assistance from international financial institutions, have been preferred to manage economic instability.

Previous Year Questions on Financial Emergency (Article 360)

1. UPSC CSE Prelims 2018:

Question: Under which article can a Financial Emergency be declared in India?

A) Article 356
B) Article 352
C) Article 365
D) Article 360

Answer: D

Explanation: Article 360 allows the President to declare a Financial Emergency if the financial stability or credit of India is threatened.

2. UPSC CSE Mains 2020 (GS Paper 2):

Question: "Discuss the potential impact of a Financial Emergency on state autonomy and governance in India."

Answer: A Financial Emergency would give the Centre control over state financial matters, potentially reducing the autonomy of states. It could lead to the central government dictating financial policies for states, including the reduction of salaries of state employees and judges. This could strain Centre-State relations and weaken the federal structure of India. However, such an emergency has never been declared in India, possibly due to concerns over the centralization of power and the political implications of invoking such a measure.

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