Financial Emergency (Article 360)

Declaration

Grounds of Declaration

• Declared when the financial stability or credit of India (whole or part) is threatened.
• Example: If the economy collapses due to debt crisis, war expenditure, hyperinflation, or severe credit default.

👉 38th Amendment (1975): Made President’s satisfaction final and beyond judicial review.
👉 44th Amendment (1978): Reversed it → Now, proclamation is subject to judicial review.

Parliamentary Approval and Duration

• Must be approved by both Houses of Parliament within 2 months.
• If Lok Sabha is dissolved → survives until 30 days after first sitting of new LS, provided Rajya Sabha approves in meantime.
• Once approved → continues indefinitely until revoked.
  • No maximum period.
  • No need for periodic re-approval (unlike National Emergency).
• Approval requires simple majority (members present & voting).
• Can be revoked anytime by President → no parliamentary approval needed for revocation.

Effects of Financial Emergency

Once declared, Centre gains sweeping powers over states’ finances:

1. Centre’s authority over states:
   • President can direct states to follow financial propriety rules.
   • President can order states to reserve Money Bills/Financial Bills for his approval even after passage in state legislature.
2. Salary control in states:
   • President can direct reduction of salaries & allowances of any class of persons serving in states.
3. Salary control at Union level:
   • President can direct reduction in Union employees’ salaries.
   • Even salaries of Judges of SC and HCs can be reduced.

👉 This means complete financial centralisation—states lose their financial autonomy entirely.

Ambedkar’s Justification

In the Constituent Assembly, Dr. Ambedkar explained why this provision was needed:

• Inspired by the National Recovery Act, 1933 (USA), brought during the Great Depression.
• Such powers were thought necessary to save the Indian economy during extreme crises.

But members like H.N. Kunzru warned → it could be a serious threat to states’ financial autonomy.

Historical Note

• No Financial Emergency has ever been declared.
• Even during the 1991 balance of payments crisis (when India had to mortgage gold and approach IMF/World Bank), Govt avoided it. Instead, India adopted economic reforms and liberalisation.

A simple Analogy

Imagine India as a family where each member (state) normally earns and spends their pocket money.

• If suddenly the family falls into severe debt, the head of the family (Centre) says:
  • “From now on, I will decide your allowances, how much you can spend, and even reduce your salaries if needed.”
• This is Financial Emergency—the family’s financial crisis forces one authority to take total control.