Subject: Indian Polity

The proclamation of Financial Emergency under Article 360 represents one of the most significant constitutional safeguards to protect India's financial stability and sovereignty.

Circumstances for Financial Emergency Proclamation

• The President can declare Financial Emergency if satisfied that India's financial stability or credit is threatened due to:

  • Severe economic crisis affecting public finances.
  • Threat to financial stability of the country.
  • Breakdown of financial mechanism.
  • Natural calamities impacting economy severely.

• The proclamation must be approved by both Houses of Parliament within 2 months of its issuance, failing which it ceases to operate.

• Unlike other emergencies, Financial Emergency has never been proclaimed in India since independence, showcasing the robustness of India's financial management systems.

Consequences of Financial Emergency

• Centre-State Financial Relations:

  • Centre can direct states regarding financial matters.
  • States must reserve money bills for President's consideration.
  • Centre can reduce salaries of government employees including judges.

• Administrative Control:

  • Distribution of financial resources between Centre and States can be modified.
  • Financial obligations of the Centre and States can be reduced.
  • All money bills need President's approval before introduction in state legislature.

• Constitutional Safeguards:

  • As per the Minerva Mills case (1980), the Supreme Court can review the proclamation on grounds of malafide or based on irrelevant considerations.
  • Parliament's approval within 2 months ensures democratic oversight.
  • Can be revoked by a subsequent proclamation.

Financial Emergency serves as a constitutional mechanism to address severe economic crises, though India's robust financial management and fiscal federalism have ensured that such extreme measures haven't been necessary. The framework provides necessary checks through parliamentary oversight and judicial review, making it a well-balanced constitutional provision exemplified by successful handling of economic challenges like the 1991 economic crisis without resorting to Article 360.