Article 360 of the Indian Constitution: Financial Emergency

Article 360 of the Indian Constitution provides for the proclamation of a Financial Emergency in India. This provision, modelled on the National Recovery Act of the USA of 1933, was incorporated to safeguard the financial stability and credit of the country in times of grave economic crisis.

The power to proclaim a Financial Emergency is vested in the President of India, acting on the aid and advice of the Council of Ministers. It is an extraordinary power intended to enable the Union government to take necessary measures to restore financial stability.

Original Text

360. Proclamation of Financial Emergency.

(1) If the President is satisfied that a situation has arisen whereby the financial stability or credit of India or of any part of the territory thereof is threatened, he may by a Proclamation make a declaration to that effect.

(2) A Proclamation issued under clause (1)— (a) may be revoked or varied by a subsequent Proclamation; (b) shall be laid before each House of Parliament; (c) shall cease to operate at the expiration of two months, unless before the expiration of that period it has been approved by resolutions of both Houses of Parliament:

Provided that if any such Proclamation is issued at a time when the House of the People has been dissolved or the dissolution of the House of the People takes place during the period of two months referred to in sub-clause (c), and if a resolution approving the Proclamation has been passed by the Council of States, but no resolution with respect to such Proclamation has been passed by the House of the People before the expiration of that period, the Proclamation shall cease to operate at the expiration of thirty days from the date on which the House of the People first sits after its reconstitution, unless before the expiration of the said period of thirty days a resolution approving the Proclamation has also been passed by the House of the People.

(3) During the period any such Proclamation is in operation, the executive authority of the Union shall extend to the giving of directions to any State to observe such specified canons of financial propriety as may be deemed necessary or expedient for the purpose of securing financial stability and credit of the State.

(4) Notwithstanding anything in this Constitution— (a) any such direction may include— (i) a provision requiring the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of a State; (ii) a provision requiring all Money Bills or other Financial Bills as are introduced or moved in the Legislature of a State to be reserved for the consideration of the President after they are passed by the Legislature of the State; (b) it shall be competent for the President during the period any such Proclamation is in operation to issue directions for the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of the Union including the Judges of the Supreme Court and the High Courts.

Detailed Explanation

Article 360 deals with the provisions relating to the Financial Emergency in India. It is one of the three types of emergencies provided by the Constitution, the others being National Emergency (Article 352) and State Emergency (Article 356). The primary objective of Article 360 is to enable the Union government to maintain financial stability and creditworthiness in the country during a severe financial crisis.

Grounds for Proclamation: The President can proclaim a Financial Emergency if he is satisfied that a situation has arisen whereby the financial stability or credit of India or any part of its territory is threatened. The satisfaction of the President is based on the aid and advice of the Council of Ministers.

Parliamentary Approval and Duration: A proclamation of Financial Emergency must be laid before both Houses of Parliament. It ceases to operate at the expiration of two months from the date of its issue, unless it has been approved by resolutions passed by both Houses of Parliament within that period. If the Lok Sabha is dissolved during the two-month period, or is dissolved before the proclamation, and the Rajya Sabha approves it, the proclamation continues until 30 days after the first sitting of the newly reconstituted Lok Sabha. Within these 30 days, the new Lok Sabha must approve the proclamation for it to continue. Once approved by both Houses, the Financial Emergency can continue for an indefinite period till it is revoked by the President. There is no maximum period prescribed for its operation after parliamentary approval. Repeated parliamentary approvals are not required for its continuance.

Effects of Financial Emergency: During the operation of a Financial Emergency, the executive authority of the Union extends to giving directions to any State regarding financial propriety. These directions may include:

A provision requiring the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of a State.
A provision requiring all Money Bills or other financial Bills, after being passed by the State Legislature, to be reserved for the consideration of the President. The President can also issue directions for the reduction of salaries and allowances of all or any class of persons serving in connection with the affairs of the Union, including the Judges of the Supreme Court and the High Courts. This highlights the severity of the situation contemplated by Article 360, where even judicial salaries can be reduced.

Revocation: A proclamation of Financial Emergency can be revoked or varied by a subsequent proclamation by the President. No parliamentary approval is required for its revocation.

Judicial Review: The 38th Amendment Act of 1975 made the President’s satisfaction in proclaiming a Financial Emergency final and conclusive and beyond judicial review. However, the 44th Amendment Act of 1978 reversed this provision, stating that the President’s satisfaction is not beyond judicial review. While the justiciability of the grounds for satisfaction might be limited, the existence of the circumstances allowing for the proclamation could potentially be reviewed by courts.

Usage: A Financial Emergency under Article 360 has never been proclaimed in India so far.

Detailed Notes

Grounds: Proclaimed by the President if the financial stability or credit of India or any part of its territory is threatened.
Authority: Issued by the President on the advice of the Council of Ministers.
Parliamentary Approval:
- Must be laid before both Houses of Parliament.
- Ceases after two months unless approved by resolutions of both Houses of Parliament.
- Approved by simple majority in both Houses.
- Special provision for Lok Sabha dissolution (approval within 30 days of first sitting of new Lok Sabha if Rajya Sabha has approved).
Duration: Continues indefinitely after parliamentary approval until revoked. No maximum limit prescribed after approval.
Effects on States:
- Union can give directions to States to observe canons of financial propriety.
- Union can direct reduction of salaries and allowances of State government employees.
- State Money Bills and Financial Bills must be reserved for President’s consideration after passing by State Legislature.
Effects on Union & Judiciary:
- President can direct reduction of salaries and allowances of Union government employees.
- Includes reduction of salaries and allowances of Judges of the Supreme Court and High Courts.
Revocation: Can be revoked by a subsequent proclamation by the President. No parliamentary approval required for revocation.
Judicial Review: President’s satisfaction is subject to judicial review (as per 44th Amendment Act, 1978).
Usage: Has never been imposed in India.

Additional Comments

Article 360 provides the Union government with overriding powers in financial matters during a severe economic crisis, significantly impacting the federal structure.
The power to reduce salaries of Supreme Court and High Court judges highlights the extreme nature of the emergency situation contemplated.
The 44th Amendment’s restoration of judicial review provides a check against potential misuse, although the scope of review might be limited to malafides.
Despite economic challenges in the past, including the 1991 crisis, Article 360 has not been invoked, suggesting it is considered a measure of last resort.

Summary

Article 360 empowers the President to declare a Financial Emergency if the financial stability or credit of India is under threat. Such a proclamation requires approval by both Houses of Parliament within two months and can then continue indefinitely until revoked. During a Financial Emergency, the Union can issue directions to states regarding financial matters, including the reduction of salaries for state employees and the reservation of state financial bills for presidential consideration. The President can also direct the reduction of salaries for Union employees and judges of the Supreme Court and High Courts. The President’s decision is subject to judicial review, and this provision has never been invoked in India.