Q3. Under what circumstances can the Financial Emergency be proclaimed by the President of India? What consequences follow when such a declaration remains in force?
Model Answer:
Introduction
The provision for Financial Emergency in India is outlined under Article 360 of the Constitution. While it has never been invoked in India's history, this emergency can be proclaimed by the President under specific circumstances where the financial stability of India or any part of its territory is threatened.
Body
Circumstances for Proclaiming Financial Emergency:
- Imminent Threat to Financial Stability: If the President is satisfied that the financial stability or credit of India or any part thereof is in jeopardy, a Financial Emergency can be proclaimed.
- Economic Crisis: A severe fiscal deficit, external economic shocks, or a massive debt crisis could lead to a Financial Emergency. Examples could include runaway inflation, failure to meet international debt obligations, or insolvency of key government institutions.
- Parliamentary Approval: The proclamation must be approved by both Houses of Parliament within two months. Once approved, it remains in force indefinitely until revoked by the President.
Consequences of Financial Emergency:
- Reduction in Government Expenditure: The President can direct the reduction of salaries and allowances of all or any class of persons serving in the Union and State governments.
- Control Over State Finances: The President can order the reorganisation of state budgets and require the reduction of salaries and expenditure in the states, giving the Union government authority over state financial matters.
- Directive to Reserve Bank of India (RBI): The RBI may be directed to take control of economic and financial policies, ensuring stability and preventing further deterioration.
- Suspension of Financial Obligations: The Center can take measures to prevent the default on any financial obligations, renegotiating debts or loans to ensure financial stability.
Conclusion
The Financial Emergency provision exists as a safeguard against potential financial crises. While it has never been invoked, the consequences of such a declaration would centralise financial control in the hands of the Union government and affect the salaries and financial autonomy of states, ensuring that the nation’s financial stability is restored.
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