Simone Lawson
The Indian Constitution grants the President of India the authority to declare a financial emergency if the country is facing severe economic issues. This is outlined in Article 360 of the Constitution, which states that the President can declare a financial emergency if they believe that the financial stability or credit of India or any of its territories is under threat. Notably, despite India facing severe economic crises in 1991 and 2020, a financial emergency has never been declared in the country's history.
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What You'll Learn
The President's role in a financial emergency
During a financial emergency, the President can issue directives to address the crisis. This includes the ability to:
- Give financial orders to any state.
- Reserve all money bills or other financial bills for their consideration after they are passed by the state legislature.
- Direct the reduction of salaries and allowances for all or any class of persons serving the Union, including judges of the Supreme Court and High Courts.
- Modify the constitutional distribution of revenues between the central government and the states.
The President's proclamation of a financial emergency must be approved by both Houses of Parliament within two months from the date of its issue. Once approved, the emergency continues indefinitely until revoked. Notably, the President can revoke the proclamation at any time without parliamentary approval.
It is important to note that, despite various economic crises in India's history, a financial emergency has never been declared. The potential invocation of such powers has been a subject of debate, particularly during the COVID-19 pandemic and the 1991 financial crisis. However, critics argue that the provisions of financial emergency pose a threat to the financial autonomy of the states and the federal structure of the country.
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Parliamentary approval and duration
The President of India can proclaim a state of financial emergency if they are satisfied that a situation has arisen that threatens the financial stability or credit of India or any part of its territory. This is outlined in Article 360 of the Indian Constitution, which gives the President the authority to declare a financial emergency on the aid and advice of the Council of Ministers.
Once a proclamation of financial emergency has been issued, it must be approved by both the Houses of Parliament (Lok Sabha and Rajya Sabha) within two months from the date of its issue. A simple majority is required to pass the resolution. Notably, there is no maximum time limit prescribed for the operation of a financial emergency, and repeated parliamentary approval is not required for its continuation. However, the President can revoke the proclamation of financial emergency at any time without parliamentary approval.
During a financial emergency, the Central government gains full control over states in financial matters, which can be a threat to the state's financial sovereignty. The executive authority of the Centre expands, and it can issue financial orders to any state. The President can also reserve all money bills or other financial bills for their consideration after they are passed by the state legislature. Additionally, the President may direct the reduction of salaries and allowances for all or any class of persons serving the Union, including judges of the Supreme Court and High Courts.
It is important to note that, despite the existence of financial emergency provisions in the Indian Constitution, there has never been a declared financial emergency in the country, even during significant financial crises such as in 1991.
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The impact on states' financial sovereignty
The Indian Constitution gives the President of India the power to impose a financial emergency in certain situations. Article 360 of the Constitution provides that if the President is satisfied that a situation has arisen that threatens the financial stability or credit of India or any part of its territory, he or she may impose a financial emergency.
During a financial emergency, the central government's executive authority expands, and it can issue financial orders to any state. This means that the centre gets full control over states in financial matters, threatening the state's financial sovereignty. The President can modify the constitutional distribution of revenues between the centre and the states, and all money bills or other financial bills passed by the state legislature are reserved for the President's consideration. The President may also issue directions for the reduction of salaries and allowances of all or any class of persons serving the Union, including the judges of the Supreme Court and the High Courts.
The financial emergency provisions in the Indian Constitution have been criticised for potentially destroying the federal character of the Constitution and concentrating power in the hands of the union executive. Some argue that this poses a serious threat to the financial autonomy of the states and is against the federal structure of the country.
Despite facing severe economic issues and financial crises, such as in 1991, India has never declared a financial emergency. During the COVID-19 pandemic, there were calls for a financial emergency, but these were rejected by the Finance Minister, who stated that it was not being contemplated. Instead, the government implemented various relief packages and eased norms for insolvency and bankruptcy.
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The suspension of constitutional provisions
The Indian Constitution grants the President of India the authority to declare a financial emergency under Article 360 of Chapter XVIII if they believe that the country's financial stability or credit is threatened. This proclamation empowers the central government to take control of financial matters in states, which some critics argue poses a threat to the financial autonomy of the states and goes against the federal structure of the country.
During a financial emergency, the executive authority of the centre expands, and it can issue financial orders to states. The President may reserve all money bills or other financial bills for their consideration after being passed by the state legislature. Additionally, they can direct the reduction of salaries and allowances for all or any class of persons serving the Union, including judges of the Supreme Court and High Courts.
The 38th Amendment Act of 1975 initially made the President's satisfaction in invoking Article 356 final and conclusive, not subject to judicial review. However, this provision was later removed by the 44th Amendment Act of 1978, which restored the Supreme Court's ability to review the declaration of a financial emergency.
A proclamation of financial emergency must be approved by both Houses of Parliament within two months of its issue. Once approved, it remains in effect indefinitely until revoked by the President, without requiring further parliamentary approval. This absence of a maximum time limit and the potential for repeated extensions every six months has been a point of contention.
While a financial emergency has never been declared in India, the country faced a severe financial crisis in 1991, and more recently, the COVID-19 pandemic and global economic downturn. Despite these challenges, the government has not invoked a financial emergency, opting instead for relief packages, insolvency and bankruptcy norm easements, and other economic measures.
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The scope of judicial review
The 38th Amendment Act of 1975 initially made the satisfaction of the President in invoking a financial emergency under Article 360 final and conclusive, shielding it from any form of judicial review. However, this provision was subsequently revoked by the 44th Amendment Act of 1978, which established that the President's satisfaction is not entirely beyond judicial scrutiny. This amendment ensures a system of checks and balances, allowing the Supreme Court to review the declaration of a financial emergency.
The Supreme Court's role in judicial review is crucial but limited. In the State of Rajasthan v. Union of India case, the Court clarified that the scope of judicial review is restricted to examining the grounds on which the President's satisfaction is based, such as mala fide, extraneous, or irrelevant considerations. The Court acknowledged that the power to declare a financial emergency lies with the executive branch and not the judiciary or legislature. The Court's role is to ensure that the executive branch does not exceed its authority while exercising its powers.
The 44th Amendment Act of 1978 also addressed the duration and approval process of a financial emergency. Once a financial emergency is declared by the President, it must be approved by both Houses of Parliament within two months. There is no maximum time limit for the operation of a financial emergency, and it continues indefinitely until revoked. This indefinite duration highlights the importance of judicial review to ensure that the executive branch exercises its powers responsibly and within the framework of the Constitution.
The Constitution grants the President significant authority during a financial emergency, including the ability to issue financial orders to states, reserve money bills, and reduce salaries of individuals serving in the state, including judges. These measures underscore the delicate balance between addressing financial crises and preserving the autonomy of states within India's federal structure.
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Frequently asked questions
A financial emergency in India occurs when the country is facing severe economic issues. The President of India can proclaim a financial emergency if they believe that the financial stability or credit of India or any part of its territory is threatened.
During a financial emergency, the central government gets full control over states in financial matters. The President can modify the constitutional distribution of revenues between the centre and the states, and can give financial orders to any state. The President can also reserve all money bills or other financial bills for their consideration after they are passed by the legislature of the state.
The President of India can declare a financial emergency on the aid and advice of the Council of Ministers.
