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Financial Emergency and its Consequences

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  • Difficulty Level : Expert
  • Last Updated : 21 Feb, 2022

Emergency in the Indian Constitution can be defined as a sudden change of constitutional setup that can be announced by the President of India when he sees a grave threat to the country from internal or external sources or problems associated with the financial conditions prevalent in the country. As a result, President can overrule multitudinous provisions of the Constitution, particularly those that offer the fundamental rights of the citizens of India and even the powers of the States.

The emergency provisions are enlisted in Part XVIII of the Indian Constitution from Article 352 to Article 360. These provisions empower the Central Government to tackle any issue effectively. The Government of India Act 1935 provided with the emergency provisions and the provision of the suspension of fundamental rights had been taken from the Weimar Constitution.

There are three kinds of emergencies that can be declared in India namely, National Emergency, Constitutional Emergency, and Financial Emergency.

Under Article 360, if the President is satisfied that there is financial instability or any part of its territory is threatened due to it, he can declare Financial Emergency. President can take aid and advice from the Council of Ministers.  

Types of Emergencies under the Indian Constitution:

1) National Emergency

Under Article 352, National Emergency can be declared by the President of India due to war, armed rebellion, or external aggression. Approval by both the houses of the Parliament that is Rajya Sabha and Lok Sabha by the special majority within one month of the issue of the proclamation is required for this kind of emergency situation. The National Emergency so far has been declared only three times in India. 

Consequences of National Emergency

Some of the serious consequences of a proclamation of emergency are as follows:

  1. The fundamental rights mentioned in Article 19 of the Indian Constitution remain suspended (according to Article 358).
  2. The Parliament can make laws relating to the matters stated in the State List.
  3. Article 20 (The right to protection from criminal prosecution) and Article 21 (the right to life and personal liberty) remain enforceable.

2) Constitutional Emergency

Constitutional Emergency is also known as the President’s Rule or State Emergency and it occurs because of the failure of the constitutional machinery. According to Article 356, one of the reasons for the declaration of the Constitutional Emergency is that if the President is satisfied that a state cannot carry out its functions according to the provisions prescribed in the constitution, he can declare State Emergency. The duration of the emergency is from six months to not more than three years. Almost every state of our country has faced this state of emergency. It was imposed 4 times in Tamil Nadu in 1976, 1980, 1988, and 1991. The first State where this type of emergency was imposed in Punjab in the year 1952.

Consequences of Constitutional Emergency

Some of the consequences of the Constitutional Emergency are:

  1. The State Assembly is dissolved or suspended.
  2. The Parliament takes the hold of the entire State’s budget and makes laws regarding the State List.

3) Financial Emergency

Financial Emergency is under judicial review. However, the 38th Amendment Act of 1975 stated that the decision taken by the President regarding the satisfaction of the Financial Emergency is final and not questionable in any court and on any ground. But, the 44th Amendment Act of 1978 stated that the satisfaction of the President can be challenged in the court and it is not beyond judicial review.  

A. Duration of  Financial Emergency

A resolution can be passed by either Lok Sabha or Rajya Sabha only by a simple majority. The proclamation must be approved within 2 months from the date of its issue. Repeated parliamentary approval is not required. The proclamation may be revoked anytime by the President.

B. Manifestation of Financial Emergency

No use of Financial Emergency has ever been made so far. In 1991, a close situation arose due to a balance of payment crisis. Still, the emergency was not declared in India.

C. Consequences of Financial Emergency

  1. The Central Government shall give directions to the State concerning the financial matters or other related affairs of the Government.
  2. Executive powers of the Central Government expands to a considerable degree.
  3. The allowances and salaries of the authorities or employees working under the State may be reduced which also includes the judges of the Supreme Court and High Court.
  4. Approval of the president is required for the Money bills and Money bills shall be reserved for this purpose.
  5. The Central Government may also reduce the budget given to the States or can simply cut it also.

D. Significance of Financial Emergency

If a country is facing financial instability or crisis then the declaration of the provisions of Financial Emergency can help that country to easily overcome such situation. According to Dr. B. R. Ambedkar, Article 360 of the Indian Constitution followed the National Recovery Act, 1933 of the US which empower the President to make similar provisions to lessen the difficulties of the American people due to the Great Depression of the 1930s.

E. Circumstances under which Financial Emergency can be invoked in India

Some of the circumstances that can lead to Financial Emergency are mentioned below-  

  1. If there is growth in the fiscal deficit.
  2. In case there is a decline in the credit ratings of the country.
  3. The current account deficit is heightened.
  4. There is a decline in Gross domestic product.
  5. Provided that economic slowdown is prevalent.
  6. In case of a decrease in the value of the Indian rupee.
  7. There is doubt regarding the financial stability of the country. Financial instability is a loose term. Its meaning can be extended to a vast range of conditions that can exist in a country.

F. Criticism

  • The Central Government acquires complete authority over the financial matters of the State. This can lead to the Central Government’s tyranny and poses a serious threat to the State’s autonomy.
  • Dr. B.R. Ambedkar, the Chief architect of the Indian Constitution also mentioned the mishandling and utilization of the Articles of the Constitution for political purposes. It was observed that the fundamental rights of the citizens will get useless due to emergency provisions.

Note: Due to the ongoing pandemic conditions, a reduction in economic activities can be clearly seen. Countries are facing a burden on their financial sector. During these crucial times, is it feasible to declare a financial emergency in India? This topic has been under debate for a long time. However, it was concluded by Prime Minister Narendra Modi that the current situation does not demand a declaration of a Financial Emergency.

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