Financial Emergency (Article 360)

At a Glance

• What it is The emergency for a threat to the financial stability or credit of India
• Article Article 360
• Approval Both Houses within two months, by a simple majority
• Declared so far Never
• Exam link UPSC Prelims, Polity: Emergency Provisions

Where Does It Fit?

This is the fourth topic of the category on Emergency Provisions. Of the three types of emergency in the Constitution, the Financial Emergency under Article 360 is the only one that has never been used.

Grounds and Judicial Review

Article 360 empowers the President to proclaim a Financial Emergency if satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened. The 38th Amendment Act of 1975 made the President’s satisfaction final and conclusive, not questionable in any court on any ground. The 44th Amendment Act of 1978 deleted this, so the satisfaction of the President is not beyond judicial review.

Approval, Duration and Revocation

A proclamation of Financial Emergency must be approved by both Houses of Parliament within two months of issue. If the Lok Sabha is dissolved, or dissolved within the two months without approving, the proclamation survives until 30 days from the first sitting of the reconstituted Lok Sabha, provided the Rajya Sabha has approved it in the meantime.

Once approved, the Financial Emergency continues indefinitely till it is revoked. This implies two things: there is no maximum period for its operation, and repeated parliamentary approval is not required for its continuation. The resolution approving it is passed by a simple majority of members present and voting in either House. The President can revoke it at any time by a subsequent proclamation, which does not need parliamentary approval.

Effects of Financial Emergency

1. The executive authority of the Centre extends to giving directions to any state to observe the canons of financial propriety and such other directions as the President may deem necessary.
2. Such directions may include reduction of salaries and allowances of all or any class of persons serving in the state, and reservation of all money bills or other financial bills for the consideration of the President after they are passed by the state legislature.
3. The President may direct 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.

During a Financial Emergency the Centre acquires full control over the states in financial matters.

Comparison with the Other Emergencies

The table shows why Financial Emergency stands apart: it needs the least parliamentary control once approved, because no periodic renewal is needed, yet it has never been used. Examiners often combine this with the question of whether the satisfaction of the President is open to judicial review, which it is after the 44th Amendment.

Why It Is Controversial

H.N. Kunzru, a member of the Constituent Assembly, said the financial emergency provisions pose a serious threat to the financial autonomy of the states. Explaining the reasons for including them, Dr B.R. Ambedkar said the Article more or less follows the pattern of the National Recovery Act of the United States passed in 1933, which gave the President power to make similar provisions to remove the economic and financial difficulties caused by the Great Depression. No Financial Emergency has been declared so far, though there was a financial crisis in 1991. It is worth remembering that the Article also lets the Centre reserve state money bills for the President after the state legislature has passed them, which no other emergency provision does.

Why Is This Topic Important?

• Comparison question Often asked against Article 352 and 356
• Unused provision Examiners ask “has it been declared”
• Federal finance Links to the finance topics in category 11

What Came Next?

The next topic covers suspension of Fundamental Rights during an emergency under Articles 358 and 359.

Key People and Terms

• Financial propriety Sound handling of public money
• Money bill Bill reserved for the President in financial emergency
• Canons Principles of financial conduct
• National Recovery Act US law of 1933 Ambedkar referred to
• Great Depression The crisis behind that law

Exam Corner

Mains Angle

Questions on this topic usually ask about its impact on federalism. Use these points to add depth.

• Full financial control The Centre can direct states on financial propriety
• Judges affected Salaries of judges can be reduced
• Never used Even in the 1991 crisis