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Financial Emergency in Indian Constitution

Under article 360 of the constitution, President can proclaim a financial emergency when the financial stability or credit of the nation....

Under article 360 of the constitution, President can proclaim a financial emergency when the financial stability or credit of the nation or of any part of its territory is threatened. However, the 38th Amendment Act of 1975 stated that the decision taken by the President regarding the satisfaction of the Financial Emergency is final and not questionable in any court and on any ground. But, the 44th Amendment Act of 1978 stated that the satisfaction of the President can be challenged in the court and it is not beyond judicial review.  

Parliamentary Approval And The Time Period Of Financial Emergency

  • In accordance with the provisions of Article 360(2) of the Constitution of India, the proclamation of a state of financial emergency must be approved by both Houses of Parliament within a period of two months of its issuance.
  • If both Houses of Parliament agree, a financial emergency remains in effect until it is abolished.
  • There are two things that can be inferred from this:
    • The continuation of it does not require further consent from the Parliament.
    • There are no time constraints for the function of a financial emergency.

Is Financial Emergency Under Judicial Review

  • The 38th Amendment Act of 1975 made it so that the declaration of a financial emergency could not be contested in court.
  • The 44th Amendment Act of 1978 eliminated the clause added by the 38th Amendment Act of 1975, which suggests that the president’s satisfaction is subject to judicial review (that is, it can be challenged in court).
  • The financial emergency is presently being investigated by the courts.

Effects of Financial Emergency

  • Expansion of the Union’s executive power over the States’ financial affairs.
  • Reduction in the pay and benefits received by all or certain classes of state employees.
  • After being approved by the state legislature, all money bills and other financial bills are reserved for the President’s approval.
  • The Supreme Court and High Court judges, as well as any other class of employees who serve the Union, are to have their salaries and benefits reduced, according to a directive from the President.

Circumstances under which Financial Emergency can be invoked in India

Some of the circumstances that can lead to Financial Emergency are mentioned below-  

  1. If there is growth in the fiscal deficit.
  2. In case there is a decline in the credit ratings of the country.
  3. The current account deficit is heightened.
  4. There is a decline in Gross domestic product.
  5. Provided that economic slowdown is prevalent.
  6. In case of a decrease in the value of the Indian rupee.
  7. There is doubt regarding the financial stability of the country. Financial instability is a loose term. Its meaning can be extended to a vast range of conditions that can exist in a country.

Criticism of Financial Emergency

  • The Central Government acquires complete authority over the financial matters of the State. This can lead to the Central Government’s tyranny and poses a serious threat to the State’s autonomy.
  • Dr. B.R. Ambedkar, the Chief architect of the Indian Constitution also mentioned the mishandling and utilization of the Articles of the Constitution for political purposes. It was observed that the fundamental rights of the citizens will get useless due to emergency provisions.

Significance of Financial Emergency

  • Financial Crisis Solution: Declaration of Financial Emergency aids a country in addressing financial instability or crisis effectively.
  • Article 360 Inspiration: Dr. B. R. Ambedkar drew inspiration from the US National Recovery Act, 1933.
  • President’s Empowerment: Article 360 empowers the President to implement provisions to alleviate difficulties faced by citizens.
  • Similar to US: Like the US tackled the Great Depression, India can respond to economic challenges through this provision.
  • Effective Tool: Financial Emergency is a tool for managing economic turmoil and promoting stability.


Recent instances of financial emergencies in countries like Sri Lanka and Afghanistan highlight that a financial emergency is viewed as a final option for implementation in cases of profound economic distress in the economy. The President invokes the financial emergency under Article 360 to navigate the drastic economic conditions that pose a threat to the overall financial stability of the country and can revoke it when the economic conditions stabilise.

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