Overview of Financial Emergency

Overview of Financial Emergency

The Indian Constitution has given power to President of India to impose emergency in certain situations. The constitution also provided the situations in which emergency can be imposed. The Chapter XVIII (Article 360) of constitution deals with emergency situations and provides exceptional rights to central government/president to invoke certain provisions of constitution to control exceptional situations prevailing in country.

As of now, India as well as other part of world is facing Covid 19 crises. The present situation is exceptional situations and global economy is suffering.  Further as per recent statement of International Monetary Fund (IMF) recession is coming soon. Considering current prevailing situations, every leading country is imposing various restrictions on exports of essential items. Further countries are trying to sustain their economy by offering various economy relief packages.

Due to Covid 19, India announced 1.7 lakh crore relief to overcome the situations arises out of Covid 19. Such huge budget is going to impact funds available with union government. To manage government’s financial position financial emergency may be inevitable.

The Article 360 of chapter XVIII of Constitution of India contains provisions relating to Financial Emergency. The article 360 provides a safeguard for the Central Government from financial threat exists to the financial stability of India. Hence whenever central government expect any financial risk to Indian economy then financial emergency can invoke. However in Indian history, Financial Emergency has never been invoked.

What are situations where Financial Emergency can invoke:

There are various cases where central government can invoke financial emergency. Here is list of some of situations where central government may proceed for financial emergency:

  1. Increase in fiscal deficit
  2. Increase in current account deficit
  3. Reduction in Gross domestic Production
  4. Reduction in credit ratings of country
  5. Doubt on financial stability of country
  6. Reduction in value of Indian rupee
  7. Economic Slowdown

However Indian Constitution does not provide any specific situation where financial emergency can be invoke as article 360 of  Constitution provides that “If the President is satisfied that a situation has arisen whereby the financial stability or credit of India or of any part of the territory thereof is threatened”  he may impose financial emergency.

What is Financial Emergency:

Constitution defined financial emergency as situation where risk has arise to financial stability or credit of India or of any part of the territory. So it is clear that it is not necessary that it will be proclaimed only when the financial stability of the whole country is threatened i.e. It may be a part of country. We can understand the same with help of an example.

India imports 80% of their oil needs from various countries. Payment against import of oil results in major outflow of foreign currency from India. Let suppose if oil price increase by 50% then there will be substantial increase in foreign currency outflow. So such outflow will lead to increase in current account deficit.

Situation mentioned in above is an indication where risk may arise to financial stability of India. Hence Financial Emergency may invoke.

What are effects of Financial Emergency:

If Central government invokes Financial Emergency then certain power of states gets transferred to central government. Under Financial Emergency following consequences may arise:

  • Central government gets the right to cut salary and perquisite of Central or State government Employees including judges of court
  • All financial/Money bills (budget of states) will require approval of President

Bill shall be deemed to be a Financial/Money Bill if it only contains provisions dealing with all or any of the following matters, namely:

(a) the imposition, abolition, remission, alteration or regulation of any tax;

(b)  the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India;

(c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such Fund

(d) the appropriation of moneys out of the Consolidated Fund of India;

(e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of the amount of any such expenditure;

(f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or

(g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).

On the basis of above, it is clear that central government can control financial transactions of states which were in the hands of states. Central Government shall also controls taxes and relating matters to overcome economic crises.

What is process for invocation of Financial Emergency:

To invoke Financial Emergency, a proclamation (order) shall be bring in both house of parliament. To approve such proclamation more than 50% vote must be cast in favour of proclamation. Such approval can be passed within 2 months from bringing proclamation.  If any such Proclamation is issued at a time when the House of the Parliament has been dissolved the House of the Parliament shall approve it before the expiration of thirty days from their next session.

What is validity of Financial Emergency:

There is no defined period of Financial Emergency. It is up to central government/president hence it may go to undefined period. Central government at any time withdraw Financial Emergency.

Can legal case be filed against order of Financial Emergency:

Order of passing Financial Emergency can be challenged in supreme court to check constitutional rights of central government. Court may understand the situations whether it was appropriate to invoke financial emergency and pass suitable order.

*Above blog is based on the basis of information available in public domain and  to the best of knowledge of Author. The author shall not be responsible for any action or decision taken on the basis of above blog.

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Comments ( 2 )

  • CA Suresh Chauhan

    Unfortunately your article does not address how financial emergency is going to reboost or recover the economy back to normal. Rest informative.

  • Sneha Singh

    Very knowledgeable article on Financial emergency. In the current situation, Government should be proactive and keep analysing all its options to handle the economy and save from downfall.

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