Under what circumstances can the Financial Emergency be proclaimed by the President of India? What…

Question

Under what circumstances can the Financial Emergency be proclaimed by the President of India? What consequences follow when such a declaration remains in force?

Ghissu Editorial · Accepted Answer

The President can proclaim a Financial Emergency under Article 360 when India's financial stability or credit is threatened, subject to approval by both Houses within two months. While it lasts, the Union can direct State finances, reserve State Money Bills and cut salaries, including judges'.

**Introduction**

Article 360 lets the President proclaim a Financial Emergency, the only emergency never invoked, not even during the 1991 balance-of-payments crisis. While in force, it tilts federal finances towards the Union.

**Circumstances for Proclaiming a Financial Emergency**

SKETCH: flow | Life of a Financial Emergency
- Threat to credit
- Cabinet advice
- President's satisfaction
- Both Houses approve
- Continues till revoked

1. **Ground**: On Cabinet advice, the President must be satisfied that the financial stability or credit of India, or of any part of it, is threatened.
2. **Approval**: Both Houses must approve it by simple majority within two months; if the Lok Sabha is dissolved, Rajya Sabha approval suffices until 30 days after the new House first sits.
3. **Duration and review**: Once approved it runs indefinitely until revoked, and since the 44th Amendment (1978) removed the 38th Amendment's finality clause, it is open to judicial review.

**Consequences While the Declaration Remains in Force**

1. **Financial directions**: The Union can direct States to observe canons of financial propriety and other necessary directions.
2. **Salary cuts in States**: Salaries and allowances of all or any class of State employees can be reduced.
3. **Money Bills reserved**: State Money Bills and financial bills can be reserved for the President after the legislature passes them.
4. **Union and judicial salaries**: The President can cut salaries of Union employees and of Supreme Court and High Court judges.

**Conclusion**

A Financial Emergency makes India's fiscal federation near-unitary for its duration, so its high threshold and parliamentary and judicial checks matter. Its non-use through 1991 and 2020 shows a preference for cooperative fiscal tools over centralisation.

Under what circumstances can the Financial Emergency be proclaimed by the President of India? What consequences follow when such a declaration remains in force?

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