Financial Emergency and COVID -19 - An Analysis

Updated: Jul 13, 2020

Author - Atishree Gupta


Financial Emergency described under Article 360 of Part XVIII of Indian Constitution explains as to what is financial emergency as follows that if the President is satisfied that a situation has arisen where the financial stability of India or any part of India is likely to be in a threat then the President may declare financial emergency. The project will further describe financial emergency with relation to today’ situation.


Financial emergency is described under Article 360 of Constitution of India under articles of National emergency where the article states as follows

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

2. A Proclamation provided under clause (1):

a. Maybe annulled or varied by subsequent proclamation;

b.  Shall be presented before houses of Parliament;

c. Shall stop to work at the end of two months unless end point of that period it has been accepted by the houses of Parliament. Provided that any Proclamation is provided at the time when  Lok Sabha is dismissed or dissolution takes place within the two months and the same is proceeded by the Council of states but no resolution on such has been passed by the Sabha then the Proclamation shall cease by thirty days from the time where the house of people reconstitute.

3. During the time when the Proclamation mentioned under clause (1) is in function the executive authority shall expand to the giving of supervision to any state to perceive the financial propriety;

4. Notwithstanding anything to this Constitution:

a. Any such direction may include:

1. Provision requiring decrease of salaries and shares of any class of people or any people serving in the government;

2. Provision requiring money bills or any other bills under Article 207 applied to be reticent for the thought of President after they are progressed by the legislature;

b. It shall be efficient to the President while the time of any Proclamation given in article is functioning for reduction of salaries or allowances of any class of people.

 Now the article about situations that take place when the President deems fit that the country is under threat of debt and that it cannot be paid instantly or within short period of time then he can announce the said Proclamation, then clause (2) talks about the proclamation where it may be cancelled or be varied by subsequent proclamation and to be produced before Rajya Sabha and Lok Sabha. Where sub clause (c) talks about time period that it shall stop to function within two months unless before the said period is expired that is approved by the House of Parliament, but if any Proclamation is issued when the House of People which is Lok Sabha has dissolved or in that time of two months but is proceeded by the Council which is if it is passed without the reconstitution of the Lok Sabha then it must cease to operate within thirty days where the Sabha first sits on reconstitution.

Where the clause 3 says that when the Proclamation is in functioning of the executive authority  can give direction to the state to observe financial propriety. Clause 4 talks about the provision that when the emergency is in operation then there can be reduction in the salaries or shares of any class of persons or any person serving in connection to the state.

Once the emergency is approved it is in operation until the President deems fit to revoke the said emergency without the approval of the House of Parliament.


1. Based on President’s rule:

It says that if the President thinks that the country is falling into credit and there is a lot of debt that cannot be repaid instantly or within short period of time then he announces financial emergency.

2. Essential time limit:

The time limit works on the basis of issue of order, if the President makes sure that the issue of order is onto the name then the Parliament will review and after the discussion also if the order does not take place in thirty days then the Proclamation will stop to exist.

3. Effect on the country:

During the Proclamation there are set of rules on which basis the President and the government of the country act. The major effect is on the reduction of salaries and shares of the people of any class and also on those serving the state.

The 1991 crisis:

In India till now there has been no situation in which there was the need of Proclaiming of Article 360 which is provision relating to financial emergency but back in 1991 the nation was close to the need of financial emergency where it was thought that the emergency was in operation but later was cleared that it was not an emergency but financial crisis. The crisis took place back in the year 1985 when the problem relating to the Balance of Payment began and the imports started to swell, by the edge of the year 1990 the condition became more crucial as Indian Foreign Exchange Reserves could barely finance three weeks of importing, by July the reserves led to sharp depreciation in that time the ruling Chandrasekhar government were not in the position of passing the budget of the year 1991 where all this led to the Indian Government to airlift national gold reserves as a promise to large conditional bail from the monetary fund. All this led to the liberalization of the economy.

Later, the ruling government initiated four strategy namely:

1. Fiscal correction

2. Trade policy reform

3. Industrial policy reform

4. Public sector reforms

Hence summing up the financial crisis that got hold of in the year 1991 being the only financial crisis happened in the country.

Today’s situation:

As we know that there is a situation of lock down that has taken place due to the pandemic COVID-19 as a result there is a halt in the working of people which is most of the working sector has stopped due to the lock down introduced by the Government for the safety of the people from the virus that is growing speedily in the country. But when it comes to the result of the lock down on the economy or the financial situation then as we know all the small scale sectors or even the private companies are facing huge amount of loss while people who earn on daily basis are suffering through a greater loss but the government providing them with some reliefs. Now, with all this going the question is whether there is a need of proclaiming financial emergency under Article 360 of the Constitution. There are a lot of petitions that are being filed in the court as per seeking directions for notification relating to financial emergency, where one of the petitions is filed by CASC which is a Centre for Accountability and Systemic Change where the petitioners asserts that because of the lock down that has taken place in the country, economic activities have to come to a stop which requires unified command between the Central and State government for the recovery of economy which was heard and was adjourned by the bench consisting of  Nageshwara Rao and Abdul Nazir JJ as it made it ponder that can Supreme Court issue a writ of mandamus in the direction of imposing of financial emergency as according to Article 360(1) only if the President is contended that there is a situation as to Proclaiming emergency can then only the emergency be imposed. As we know a lot of financial loss is taking place as a result of the lockdown which is being commenced from the 23rd of March 2020 and is still persistent.  

The All India Motor Transport Congress (AIMTC) gave a statement that he loses to truckers during the first fifteen days of the lockdown were about 35,200 crore on an average and loss of 2,200 rupee per truck per day. And according to Research it was held that “Nationwide containment is expected to shave off a lot of money. Recently, the government to raise the economy up to a bit had ordered in opening of the winery shops which had definitely led to bit increase. But there is still a debate as to the need of proclaiming financial emergency whereas the Government still is in the opinion that there is no requirement for the said proclamation of Article 360 of the constitution.

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