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Article 360 of the Indian Constitution – Financial Emergency

 1. Overview:

  • Article 360 of the Indian Constitution provides for the proclamation of a Financial Emergency if the President is satisfied that the financial stability or credit of India is threatened.

  • This provision is designed to address situations where the country faces a severe financial crisis that could impact the economic stability of the nation.

2. Conditions for Proclamation:

  • The President can proclaim a Financial Emergency if:

    • The financial stability or credit of India is threatened.

    • This threat could arise from situations like:

      • Economic crises (e.g., fiscal deficits, balance of payments crises).

      • Loss of revenue affecting the central or state governments.

      • Global financial shocks impacting India’s economy.

3. Procedure for Proclamation:

  • Presidential Proclamation: The President can proclaim a Financial Emergency if he is satisfied with the situation, without the need for prior approval from Parliament.

  • Parliamentary Approval:

    • The proclamation must be approved by Parliament within two months.

    • If Parliament does not approve, the emergency will cease to be in effect.

4. Duration of Financial Emergency:

  • The initial period of the Financial Emergency is two months.

  • It can be extended for six months at a time with the approval of Parliament.

  • There is no time limit for the duration, meaning it can continue indefinitely as long as the crisis persists.

5. Impact of Financial Emergency:

Under a Financial Emergency, the following measures can be taken:

  1. Control Over State Finances:

    • The President can give directions to states to reduce their financial expenditures.

    • States may be required to cut salaries of employees, including those of judges, civil servants, etc.

  2. Centralization of Financial Powers:

    • The Central Government gains greater control over the financial resources of the states.

    • Parliament can make laws on any subject in the State List related to financial matters.

  3. Reduction of Salaries and Allowances:

    • The President can direct that the salaries and allowances of all individuals holding constitutional positions (like the President, Governors, Judges, etc.) be reduced.

  4. Financial Restructuring:

    • The Central Government can intervene in the financial management of the states to restore economic stability.

6. Judicial Review:

  • The Supreme Court has the power to review the proclamation of Financial Emergency to ensure that it is not misused for political or non-financial reasons.

  • Limitations:

    • The Court can examine the existence of a financial crisis, but it cannot question the wisdom or appropriateness of the President’s satisfaction.

7. Key Case Laws on Article 360:

a) A.K. Gopalan v. State of Madras (1950)

  • Facts:

    • The case dealt with the suspension of Fundamental Rights during a financial crisis.

  • Issue:

    • Whether the financial emergency could affect the fundamental rights of individuals.

  • Judgment:

    • The Supreme Court ruled that Fundamental Rights could be curtailed in the interest of financial stability.

  • Significance:

    • Limited scope for judicial intervention during a financial emergency.

b) Kesavananda Bharati v. State of Kerala (1973)

  • Facts:

    • The case dealt with the validity of constitutional amendments during the Emergency, including financial matters.

  • Issue:

    • Whether the Parliament could amend the Constitution to limit Fundamental Rights during a financial emergency.

  • Judgment:

    • The Court established the basic structure doctrine, limiting arbitrary amendments during emergencies.

  • Significance:

    • Highlighted the importance of constitutional safeguards even during financial crises.

8. Financial Emergency in India:

  • India has never faced a Financial Emergency since the adoption of the Constitution in 1950.

  • However, the provision remains as a constitutional safeguard against potential economic crises.

9. Comparison with Other Emergencies:

AspectNational Emergency (Article 352)President’s Rule (Article 356)Financial Emergency (Article 360)
Type of EmergencyThreat to national securityBreakdown of constitutional machineryThreat to financial stability
AuthorityPresident (on Cabinet advice)President (on Governor's report)President (based on satisfaction)
DurationInitially 6 months, extendableInitially 6 months, extendableInitially 2 months, extendable
ImpactSuspension of Fundamental RightsCentralization of power in statesControl over state finances

10. Key Takeaways:

  • Article 360 is a safeguard against severe financial crises.

  • It allows the central government to intervene when the economic stability of the country is at risk.

  • Judicial review ensures that the power is not misused for political gains.

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