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Financial Emergency

Grounds of Declaration

The provisions of Financial Emergency are enshrined under Article 360 of the Constitution. This provision provides a safeguard for the Union Government if any threat exists to the financial stability of India.

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, then he may declares a Financial Emergency.

The 38th Amend 1975 states that satisfaction of President to declare a Financial Emergency is immune from Judicial Review but provision is subsequently deleted by 44th Amend which restored power of Judicial Review even over satisfaction of President

Article 360 empowers Union govt to take control over state govt on every financial matter deals by a state. The Financial Emergency has never been imposed in any part of country, neither has Article 360 been used till now.

Parliamentary Approval and Duration

Every Proclamation to declare Financial Emergency shall be laid down before each house of Parliament and must get approval in two months from date of issue.

Provided that if at the time of proclamation of a Financial Emergency, the Lok Sabha (LS) has been dissolved or the dissolution of the Lok Sabha takes place in mean time (i.e. within two months from date of issue) then must get approval of the Rajya Sabha within 2 months, but such proclamation shall cease to operate after 30 days from first sitting of Lok Sabha.

Once the declaration of Financial Emergency is approved by both houses of Parliament, it remains in operation till it is revoked by the President and no maximum period is defined under the Constitution.

The proclamation of Financial Emergency can be revoked or varied by President any time by a subsequent proclamation.

Effects of Financial Emergency

When a Financial Emergency is in action, the executive authority of the Union shall extend to the giving of directions to any State to observe such canons of financial propriety as may be specified in the directions, and to the giving of such other directions as the President may deem necessary and adequate for the purpose.

When a Financial Emergency is in operation, the directions given by or powers assumed by Union or President are as follows:-

  1. A provision requiring the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of a State.
  2. A provision requiring all Money Bills or other Bills to which the provisions of article 207 apply to be reserved for the consideration of the President after they are passed by the Legislature of the State.
  3. It shall be competent for the President to issue directions for the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of the Union including the Judges of the Supreme Court and the High Courts.

While explaining the provisions of Financial Emergency, Dr B.R. Ambedkar states that this Article more or less on pattern of National Recovery Act of USA passed in 1932 which gave President the complete power over economic and financial matters to remove difficulties and these provisions are taken by USA after the Great Depression of 1930.

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