Economic and social activities have come to a halt in the entire world including India due to the COVID-19 pandemic. Due to this, the financial catastrophe is getting worse day by day that is why Members of Parliament including; the President, the Vice-President, and the Governors of states have donated 30% of their remuneration for the next one year into the Consolidated Fund of India.

In the minds of each and every citizen of the country, there lies a significant question if a Financial Emergency can be imposed. However, Finance Minister Nirmala Sitharaman has ruled out this possibility. But, according to the Quint, Former Reserve Bank of India Governor Raghuram Rajan sees the economic fallout of the coronavirus pandemic as the “greatest emergency” India has faced since independence. There has been no instance of imposing a financial emergency in the country since its inception.

What is a Financial Emergency?

The Constitution of India talks about three types of emergencies; National Emergency in Article 352, President’s Rule in State is mentioned under Article 356 and Financial Emergency in Article 360 of the Indian Constitution. Part XVIII of the Constitution of India contains emergency provisions from Articles 352 to 360. If the President of India 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, he/she can declare the Financial Emergency on the aid and advice of the Council of Ministers.

Article 360 gives authority to the President of India to declare a financial emergency. However, according to the 44th Constitutional Amendment Act of 1978, the President’s ‘satisfaction’ is not beyond judicial review. This implies that the Supreme Court can review the declaration of Financial Emergency.

A proclamation of financial emergency must be approved by both the Houses of Parliament i.e Lok Sabha and Rajya Sabha within two months from the date of its issue.

Once approved by the Lok Sabha and the Rajya Sabha, the Financial Emergency continues indefinitely till it is revoked. This implies two things:

  • Repeated Parliamentary approval is not required for its continuation.
  • There is no maximum time limit prescribed for the operation of a financial emergency.

A resolution approving the proclamation of financial emergency can be passed by either House of Parliament (Lok Sabha or Rajya Sabha) only by a simple majority.

A proclamation of Financial Emergency may be revoked by the President anytime without any Parliamentary approval.

Impact

During the financial emergency, the executive authority of the Center expands and it can give financial orders to any state according to its own. Also, all money bills or other financial bills, that come up for the President’s consideration after being passed by the state legislature, can be reserved. Moreover, Salaries and allowances of all or any class of persons serving in the state can be reduced. Further, The President may issue directions for the reduction of salaries and allowances of:

(i) All or any class of persons serving the Union and

(ii) The judges of the Supreme Court and the High Court

Thus, during the operation of a financial emergency, the Center gets full control over states in financial matters, which is a threat to the state’s financial sovereignty.

Some critics say that provisions of financial emergency pose a serious threat to the financial autonomy of the states that is against the federal structure of the country.

-By Abhishek Khare
Legal Associate at Law Offices of Kr. Vivek Tanwar, Advocate & Associates

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