Financial Emergency under Article 360 serves as a constitutional safeguard to address severe economic crises threatening India's financial stability.

Circumstances for Financial Emergency Proclamation

• Constitutional Framework:

  • Article 360 empowers the President to declare Financial Emergency when India's financial stability or credit is threatened
  • Declaration based on satisfaction of the President regarding imminent financial crisis
  • Can be proclaimed for whole of India or specific parts

• Parliamentary Approval Process:

  • Must be approved by both Houses of Parliament within two months
  • Requires simple majority in each house
  • Lapses automatically if not approved within stipulated time
  • Can be revoked by subsequent proclamation without parliamentary consent

• Triggering Economic Conditions:

  • Severe balance of payments crisis affecting foreign exchange reserves
  • Sharp decline in credit rating and investor confidence
  • Breakdown of financial mechanisms and monetary system
  • Threat to government's ability to meet financial obligations
  • Economic instability affecting constitutional machinery

Consequences During Financial Emergency

• Unlimited Duration:

  • No maximum time limit prescribed in Constitution
  • Continues until revoked by President
  • Regular parliamentary review not mandatory after initial approval

• Judicial Immunity Affected:

  • Judges' salaries can be reduced, affecting judicial independence
  • Exception to normal constitutional protection of judicial remuneration

Despite facing severe economic challenges like the 1991 balance of payments crisis, India has never formally declared Financial Emergency. The government instead relied on structural adjustment programs and LPG reforms, demonstrating the effectiveness of policy alternatives over constitutional emergency provisions.