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

Body

Circumstances and Process of Proclamation

• Presidential Satisfaction: The President may proclaim a Financial Emergency if he or she is satisfied that a situation has arisen whereby the financial stability or credit of India, or any part of its territory, is threatened. This satisfaction is based on the binding advice of the Union Council of Ministers headed by the Prime Minister, as per Article 74.
• Criteria for Proclamation: Although the Constitution does not define the exact parameters of "financial stability or credit," it generally refers to extreme situations such as a severe balance of payments crisis, a drastic economic downturn, or a situation where the government is on the verge of defaulting on its financial obligations.
• Official Notification: The proclamation is officially promulgated by publication in the Gazette of India, making it public and legally active.
• Parliamentary Ratification:
  • Timeline: The proclamation must be approved by both Houses of Parliament within two months from the date of its issue.
  • Majority Required: It must be approved by a simple majority in both the Lok Sabha and the Rajya Sabha (i.e., a majority of the members present and voting).
  • In Case of Dissolution: If the Lok Sabha is dissolved or its dissolution takes place during the two-month period without approving the proclamation, it survives if the Rajya Sabha approves it in the meantime. The newly elected Lok Sabha must then ratify it within 30 days of its first sitting.
• Duration and Revocation: Once approved by Parliament, the Financial Emergency continues indefinitely until it is revoked by the President. No periodic parliamentary approval is required for its continuation. The President can revoke it at any time through a subsequent proclamation, which does not require parliamentary approval.

Consequences of a Financial Emergency

During the operation of a Financial Emergency, the federal character of Indian finances undergoes a significant transformation, granting the Union executive extensive control over state finances:

• Central Control over State Finances: The Union executive can issue directives to any state to observe specified canons of financial propriety as may be deemed necessary.
• Reduction of Salaries and Allowances:
  • The President can direct the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of the Union or the States.
  • This reduction can also apply to the judges of the Supreme Court and the High Courts, notwithstanding constitutional guarantees regarding their emoluments.
• Reservation of Financial Bills: The President can direct that all Money Bills or other financial Bills passed by the legislature of a State be reserved for his or her consideration after they are passed by the state legislature.
• Curtailment of State Autonomy: The financial autonomy of the states is severely restricted, as the central government assumes overarching powers to regulate state expenditures and resource allocation.