Under what circumstances can the Financial Emergency be proclaimed by the President of India? What consequences follow when such a declaration remains in force?
Subtopic: Constitution & Polity · emergency provisions
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Detailed model answer
220 words · target 150 words · 9 min
Article 360 empowers the President to proclaim a Financial Emergency on being satisfied that the financial stability or credit of India or any part of its territory is threatened. The 44th Amendment (1978) removed the immunity from judicial review that the 38th Amendment had conferred, so the President's satisfaction is open to limited judicial scrutiny.
Procedure and Duration
The proclamation must be approved by both Houses of Parliament within two months, by a simple majority. Once approved, it continues indefinitely until revoked by the President — there is no maximum period and no requirement of repeated parliamentary approval.
Consequences While in Force
- The executive authority of the Union extends to directing any state to observe canons of financial propriety.
- Such directions may require reduction of salaries and allowances of all or any class of persons serving the state.
- All money bills and other financial bills of the state legislature may be reserved for the President's consideration after being passed.
- The President may direct reduction of salaries and allowances of persons serving the Union, including judges of the Supreme Court and High Courts.
Conclusion
A Financial Emergency effectively suspends the fiscal autonomy of the states. Tellingly, it has never been proclaimed — not even during the 1991 balance-of-payments crisis — reflecting both its drastic federal implications and the availability of less extreme correctives such as IMF support and economic reform.
What an examiner expects to see
- Ground under Article 360: threat to the financial stability or credit of India or any part of its territory, as the President is satisfied.
- 44th Amendment (1978) deleted the 38th Amendment's bar, restoring limited judicial review of the proclamation.
- Approval by both Houses within two months by simple majority; thereafter continues indefinitely until revoked — no outer time limit.
- Consequence 1: Union directions to states on financial propriety, including salary and allowance reductions for state employees.
- Consequence 2: reservation of state money bills and financial bills for the President's consideration.
- Consequence 3: reduction of salaries of Union servants, expressly including Supreme Court and High Court judges.
- Never invoked since 1950 — even the 1991 crisis was handled through economic measures, underscoring its status as a last resort.
Concrete cases, schemes and judgments
- 1991 balance-of-payments crisis — foreign exchange reserves fell to about two weeks of imports, yet Article 360 was not invoked.
- 38th Amendment (1975) made the President's satisfaction final; 44th Amendment (1978) undid it.
- Contrast with Article 352 (National Emergency) and Article 356 (President's Rule), both of which need special or periodic approvals unlike Article 360's one-time simple majority.