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

The rationality behind the incorporation of Emergency provisions in the Constitution is to safeguard the sovereignty, unity, integrity and security of the country, the democratic political system, and the Constitution. During an Emergency, the central government becomes all powerful and the states go into the total control of the Centre. It converts the federal structure into a unitary one without a formal amendment of the Constitution. This kind of transformation of the political system from federal during normal times to unitary during Emergency is a unique feature of the Indian Constitution.

Grounds of Declaration of financial emergency:

1. The President of India proclaims the Financial Emergency under Article 360 of the Constitution, when he is satisfied that the financial stability or credit of India or of any part of the territory thereof is threatened.
2. The 38th Amendment Act of 1975 made the satisfaction of the president in declaring a Financial Emergency final and conclusive and not questionable in any court on any ground. But, this provision was subsequently deleted by the 44th Amendment Act of 1978 implying that the satisfaction of the president is not beyond judicial review.

Consequences of Financial Emergency:

1. The executive authority of the Centre extends:
   • to direct any state to observe such canons of financial propriety as are specified by it and
   • to direct the state as the President may deem necessary and adequate for the purpose.
2. Any such direction may include a provision requiring:
   • the reduction of salaries and allowances of all or any class of persons serving in the state and
   • the reservation of all money bills or other financial bills for the consideration of the President after they are passed by the legislature of the state.
3. The President may issue directions for the reduction of salaries and allowances of
   • all or any class of persons serving the Union and
   • the judges of the Supreme Court and the high court.
4. Thus, during the operation of a financial emergency, the Centre acquires full control over the states in financial matters.
5. Once approved it continues indefinitely without repeated legislative approvals. President can revoke this proclamation anytime. This doesn’t require parliamentary approval.

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.