Financial emergency: Maybe?

There are things you read about and safely assume will never happen. I think the provision of Financial Emergency in the Constitution of India is supposed to be one of those things. When we casually throw around GDP figures, interest rates and innumerable indices in our jargon while talking about the economy, we don’t realise that these numbers affect lives, actual human lives. A percentage point here and there affects people’s livelihood in a very real way.

The Background

Various schemes have come to the rescue such as a relief package worth INR 1.70 lakh crore, extending the dates for filing taxes, providing 15,000 crores for health infrastructure, waiving the requirement of maintaining certain minimum balance in bank accounts, and extending the date for filing tax returns. State governments have also introduced financial packages. The Reserve Bank of India (RBI) has eased norms for insolvency and bankruptcy, MSME’s, etc. All of this is contributing to a grave financial threat to our country.

Financial Emergency

Lets first get our facts straight.

What are the grounds of proclaiming an emergency?

Article 360 empowers the president to proclaim a Financial Emergency if he is satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened. This satisfaction of President is not beyond Judicial Review (44th Amendment Act of 1978) implying that it can be questioned.

What exactly happens during a Financial Emergency?

  • During the financial emergency, the executive authority of the Center expands and it can give financial orders to any state according to its own.
  • All money bills or other financial bills, that come up for the President’s consideration after being passed by the state legislature, can be reserved.
  • Salaries and allowances of all or any class of persons serving in the state can be reduced.
  • The President may issue directions for the reduction of salaries and allowances of; (i) All or any class of persons serving the Union and (ii) The judges of the Supreme Court and the High Court

It is the first point that should be noted.  It poses a serious threat to the financial autonomy of the states that is against the federal structure of the country. Also, the current support system is of the administration staff and bureaucrats of government and a reduction in salaries or other similar measures can divert their attention from the task at hand i.e. managing the crisis.


The thing is we’ve faced worse. During 1991 India had less than $1 billion dollars in forex and could finance only three weeks of import at one point. We did not do it then, I don’t see why we would do it now. Moreover, there are other means to deal with the crisis that are enshrined in the constitution. Proper enforcement is a different issue altogether. We can’t deny the fact that the system is in a disarray. For instance, there is a massive disconnect among various spheres of administration (the blame game is on).

There is one other way of looking at it. Well, the government won’t declare it even if the need arises because it would create further hysteria. The government really would want to avoid it at all costs (that are veryyyy hugeeee).

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