GK Questions and Answers on Financial Emergency in India

Coronavirus has caused a lot of financial instability in India. All members of Parliament and government officials are voluntarily donating a portion of their salaries to the India Consolidated Fund. Some expect that the country will be declared in a state of financial emergency. This subject is also crucial for a variety of competitive tests. So, there are various gk questions on financial emergency in India like Who declares the financial emergency? Or how many times financial emergencies declared in India

There is much confusion between the 4 choices like Finance Minister of India, President of India, Speaker of the Lok Sabha, and Chief Justice of the Supreme Court. 

The correct answer is that the President of India has the authority to declare a financial emergency due to the country's financial position; however, cabinet agreement is required for this proclamation.

Who is Empowered to Declare a National Emergency?

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An Illustration of Financial Emergency

If the President of India believes that a situation has emerged that jeopardizes India's financial stability or credit or any part of its territory. On the advice and assistance of the Council of Ministers, he or she might declare a Financial Emergency. The President of India has the authority to declare a financial emergency under Article 360. Keep in mind, however, that the President's'satisfaction' is subject to court review under the 44th Constitutional Amendment Act of 1978. It means that the declaration of Financial Emergency might be appealed to the Supreme Court.

Which Part of the Indian Constitution has Emergency Provisions?

The Emergency Provisions are discussed in Part XVIII (Article 352-360) of the Indian Constitution. Only the President of India, with the permission of the cabinet, has the authority to declare a state of emergency in the country. The emergency provisions are based on Germany's Weimar Constitution.

In India, there are three categories of emergencies. They are as follows:

1. National Emergency (Art. 352)

2. State Emergency or President's Rule (Art. 356)

3. Financial Emergency (Art. 360)

Article 352 deals with national emergencies, article 356 with the president's rule in the state, and article 360 with the country's financial emergency.

Parliamentary Permission and Duration of the Financial Emergency

Within two months after its issuance, a proclamation of financial emergency must be ratified by both Houses of Parliament.

The Financial Emergency, once approved by both Houses of Parliament, lasts indefinitely, until it is cancelled. Two things are implied by this:

1. Its continuation does not necessitate repeated Parliamentary approval.

2. The operation of a financial emergency is not subject to any time limits.

A resolution approving the declaration of a financial emergency can only be carried by a simple majority in either House of Parliament (Lok Sabha or Rajya Sabha).

The President can rescind a proclamation of financial emergency at any moment without Parliamentary agreement.

Details of Article 360 (1)

Do you know who is empowered to declare a national emergency? It's the President who has the right to declare a financial emergency in the country. If the President believes that a situation has occurred in which India's financial stability or credit, or any part of its territory, is in jeopardy, he/she may proclaim that effect.

Only the President has the authority to declare a state of emergency. This does not, however, exclude judicial examination of the President's authority. According to the 44th Amendment (commonly known as the Corrective Amendment), the Supreme Court has the authority to evaluate a declaration of financial emergency.

A declaration of financial emergency must be accepted by a simple majority in both Houses of Parliament, the Lok Sabha and the Rajya Sabha, within two months after its issuing. The Rajya Sabha may authorise the dissolution of the Lok Sabha, but the Lok Sabha must approve it within 30 days of its reconstitution. Once accepted by both Houses, the declaration is in effect indefinitely (no maximum term) and does not require further legislative approval. Without the permission of parliament, the president may withdraw this proclamation at any moment.

The Financial Emergency's Consequences

•  The Union gains the authority to issue financial instructions to the states based on its own policies.

• Salaries and allowances for all or any class of state employees may be lowered. The Telangana administration has agreed to reduce staff salaries by 10 percent to 75 percent. All pensioners in the state would have their salaries cut by half.

• The President has the authority to direct the states to set limits on government employee salaries and benefits.

• Money bills and other financial bills that pass through the state legislature can be reserved for examination by the President.

• The President has the power to order that the salary and allowances of Central Government officials, including Supreme Court and High Court judges, be reduced.

• The President has the authority to issue directives reducing the wages and allowances of :

1.  Any types of people who serve the Union

2. Supreme Court and High Court justices

As a result, during the operation of a financial emergency, the Center has complete financial power over states, posing a danger to the state's financial sovereignty. Some critics argue that provisions of financial emergency constitute a major threat to state financial sovereignty, which is incompatible with the country's federal system.

In 1991, India experienced a severe financial crisis. However, no Financial Emergency was declared at the time. As a result, even now, the government should make a conscientious decision in this regard, despite the fact that the entire country stands with the government in dealing with any problem resulting from the COVID-19 epidemic.

How many times has a financial emergency been declared in India? No national financial emergency has ever been declared. Despite the fact that the economy was substantially worse in 1991, no financial emergency was declared.

Indian Economic Crisis of 1991

The 1991 financial crisis was the most serious in India's history. The Indian economy was in a tumultuous situation. Significant and growing fiscal imbalances contributed to the economic catastrophe in the 1980s. The combined fiscal deficits of the federal government and states have risen considerably.

India's foreign exchange reserves have deteriorated to the point where it could barely fund three weeks' worth of imports, prompting a dramatic devaluation of the Indian rupee. In the mid-1990s, India's exchange rate was drastically changed.

However, despite the dire circumstances that had brought India to the verge of bankruptcy, no financial emergency was declared. While this situation appeared to be ripe for a financial emergency, it was averted through restructuring and devaluation of the currency.

During Prime Minister Chandra Shekhar's tenure, a condition necessitating the declaration of a financial emergency arose from 1990 to 1991, but it was again avoided by selling off India's gold reserves.

Crisis COVID-19: No Financial Emergency Was Declared 

The Center for Accountability and Systemic Change (CASC) submitted a writ petition in the form of Public Interest Litigation during the lockdown in March 2020, demanding that a financial emergency be declared due to the Covid-19 outbreak. The plea was refused, however, on the grounds that, while courts have exceptional authority, the president must establish the sustainability of a financial emergency under the rule of separation of powers.

According to the Petition: Covid-19 is the country's most significant emergency since independence, and it must be addressed by a joint command of the Union and state governments in compliance with constitutional regulations. It would aid in the economy's recovery once the lockdown is lifted. Even the country's most acute disaster, however, did not result in a declaration of financial emergency.

The President has the power to declare a financial emergency, and the Supreme Court can merely review it. Also, one must know that in the future the financial emergency arises the resolution authorising the declaration of financial emergency must be passed by any House of Parliament not by a 'special majority but only by a 'simple majority. These are important rules and regulations that are followed.