Article 360 empowers the President to declare a Financial Emergency during economic instability threatening India’s financial stability.

Financial Emergency in India

The framers of the Indian Constitution foresaw the possibility of economic disruptions that could threaten the financial integrity of the nation. To guard against such challenges, they included Article 360, which allows the President to declare a Financial Emergency. While India has faced several economic crises—most notably in 1991—Article 360 has never been invoked. Still, its presence in Part XVIII (Emergency Provisions) reflects the significance placed on fiscal stability in the federal setup.

What is Financial Emergency?

Financial Emergency, as enshrined under Article 360 of the Constitution of India, provides the Union government with the authority to respond decisively during periods when the country’s financial stability or creditworthiness is at risk. It enables the Centre to centralize financial control by overriding some fiscal autonomy of the states.

Constitutional Basis of Article 360 

If the President is satisfied that a situation has arisen where the financial stability or credit of India or any part of its territory is threatened, he may declare a Financial Emergency through a Proclamation.

The proclamation of Article 360 

• Can be revoked or varied by a subsequent proclamation.
• Must be laid before each House of Parliament.
• Will cease to operate after two months unless approved by both the Lok Sabha and the Rajya Sabha.

If the Lok Sabha is dissolved during this two-month period, and only the Rajya Sabha has approved it, the emergency continues until 30 days after the first sitting of the newly constituted Lok Sabha, provided it then also approves the proclamation.

While a Financial Emergency is in operation, the Union executive can issue financial directives to the states, which are obligated to follow them.

Origin and Inspiration of Article 360 

• The idea of a Financial Emergency in India drew inspiration from the National Recovery Act of 1933 in the United States, which gave sweeping powers to the U.S. President during the Great Depression. 
• The aim was to prevent a repeat of similar helplessness by empowering the Indian President (acting through the Union Executive) to take effective financial decisions during economic crises.

Debate in the Constituent Assembly for Article 360 

• Article 360 (then Draft Article 280-A) saw intense debate in the Constituent Assembly. Concerns were raised that the powers granted were too excessive and could undermine the federal structure. Critics feared that states would become financially subordinate to the Centre. However, supporters argued that India’s financial system was interconnected, and a crisis in one part of the country could have cascading effects.
• Ultimately, the Drafting Committee reassured members that the article was only a preventive measure and would be used sparingly. The original draft was adopted with only minor modifications.

Grounds for Proclamation of Article 360 

Unlike National or State Emergency, Article 360 does not require an external or internal threat but simply a risk to financial stability or credit. The President must be satisfied that such a situation has arisen. However, the term satisfaction has been the subject of constitutional amendments and judicial interpretations.

Judicial Review and Amendments in Article 360 

• 38th Constitutional Amendment Act, 1975: This amendment made the President’s satisfaction in declaring a Financial Emergency final and beyond judicial review.
• 44th Constitutional Amendment Act, 1978: This removed the above provision, restoring judicial review. Hence, today the President’s satisfaction can be challenged in court if found to be mala fide or arbitrary.

Parliamentary Approval and Duration of Article 360 

A Financial Emergency must be approved by both Houses of Parliament within two months of its proclamation. It requires only a simple majority ( more than 50% of members present and voting). Once approved, it continues indefinitely unless revoked by the President.

This makes it unique compared to:

• Article 352 (National Emergency): Requires approval every 6 months by a special majority.
• Article 356 (President’s Rule): Valid for 6 months and can be extended up to 3 years with periodic approvals.

Revocation of Financial Emergency or Article 360 

The President may revoke the proclamation at any time by issuing another proclamation. This revocation does not require parliamentary approval.

Impacts and Consequences of Financial Emergency or Article 360 

The proclamation of a Financial Emergency alters the Centre-State financial relationship dramatically:

• Union Directives to States
  • States must follow fiscal measures and directions issued by the Union government.
  • These include adherence to canons of financial propriety.
• Reduction in Salaries and Allowances
  • The President may direct the reduction of pay and benefits of:
    • Central government employees,
    • State government employees,
    • Judges of the Supreme Court and High Courts.
• Control Over Legislation: Money Bills and related Financial Bills passed by the state legislatures must be reserved for the President’s consideration before they can become law.
• Centralisation of Power: During a Financial Emergency, the Centre exercises almost complete financial control over the states, effectively suspending fiscal federalism.
• Critical Analysis and Concerns: Though Article 360 empowers the Union to manage economic disruptions, it comes with significant concerns.

• • Threat to Federalism: The provision allows the Centre to interfere deeply in the financial affairs of states, potentially undermining their autonomy.
  • Vague Criteria: The Constitution does not clearly define what constitutes a threat to financial stability, leaving it open to subjective interpretation.
  • Risk of Misuse: Like other emergency provisions, there is always a risk of misuse for political or authoritarian purposes.

• Scholarly Views

• Dr. B.R. Ambedkar, while defending the article, highlighted the need for a strong central hand during financial distress to protect national integrity.

• However, critics like H.N. Kunzru warned that such powers could weaken the Constitution’s federal character and diminish state autonomy.

Comparison of Article 360 with Other Emergency Provisions

The following table provides a structured comparison of these three emergency articles based on parameters like type of emergency, approval timeframe, type of majority required in Parliament, duration, and revocation authority. 

Historical Context of Article 360 

Article 360 was framed to address financial instability, ensuring constitutional tools during economic emergencies in independent India.

Financial Crisis of 1991

Despite the severe balance of payments crisis in 1991, the government did not invoke Article 360. Instead, it opted for economic liberalization and sought assistance from the International Monetary Fund. 

This reflects a cautious and measured approach by Indian policy makers in invoking extreme constitutional tools.

Why Article 360 Has Never Been Used

Strong fiscal policies, institutional safeguards, and timely economic reforms have prevented the need to invoke Article 360 till date.

• Political sensitivity around federal relations.
• Globalisation and institutional mechanisms like the RBI and IMF help manage financial issues.
• Perception of financial emergency as an extreme measure.

Conclusion 

Article 360 empowers the Union to tackle financial emergencies, yet its non-use reflects India’s strong fiscal discipline and federal commitment. It should remain a last-resort provision, exercised with utmost caution, transparency, and judicial scrutiny. Any invocation must safeguard democratic values, individual rights, and maintain the delicate balance of cooperative federalism.