Notes

Financial Emergency

Short, exam-focused revision notes. Read a section, then test yourself with a quiz.

2 min read
Explore quizzes →
Polity/System of Government/Emergency Provisions/
Financial Emergency

Financial Emergency

Article 360 of the Indian Constitution empowers the President to proclaim a Financial Emergency if he believes that a situation has arisen that threatens the financial stability or credit of India or any part of its territory. Although the provision for a Financial Emergency exists, it has never been declared in India's history, despite facing a financial crisis in 1991.

Effects of Financial Emergency

A proclamation of a Financial Emergency has significant effects on the governance and financial autonomy of states:
  1. Directions to States: The executive authority of the Centre extends to the issuance of directions to any state regarding financial propriety, as specified by the President. The Centre can guide states on how they should manage their finances, including expenditure, budgeting, and other financial matters.
  1. Reduction of Salaries and Allowances: The President can direct states to reduce the salaries and allowances of all or any class of persons serving in the state. This includes employees and officials in the state administration.
  1. Reservation of Money Bills and Financial Bills: The President can require that money bills and other financial bills passed by the state legislature be reserved for his consideration. This means that the President can either approve, modify, or reject these bills as he deems fit.
  1. Control over Union Employees and Judges: The President can also issue directions to reduce the salaries and allowances of persons serving the Union (such as central government employees) and the judges of the Supreme Court and high courts.

Conclusion

The Financial Emergency provision grants the Centre considerable control over the financial management of the states during a financial crisis. This control includes issuing directives on financial propriety, managing salaries and allowances, and reviewing state financial legislation. While a Financial Emergency has not yet been declared in India, the provision serves as a mechanism for the central government to maintain financial stability and prevent potential economic crises.