The framers of the Indian Constitution, drawing from the experience of political and economic instability during colonial times, provided for Financial Emergency under Article 360.
Circumstances for Proclamation
The President may proclaim a Financial Emergency if he is satisfied that the financial stability or credit of India, or any part thereof, is threatened.
Such a proclamation must be approved by both Houses of Parliament within 2 months (30 days if Lok Sabha is dissolved).
Once approved, it remains in force until revoked by the President; no maximum time limit is prescribed.
Consequences of Financial Emergency
Union Control over State Finances – The Union can direct States to follow financial discipline and reduce expenditure.
Reservation of Money Bills – All State Money Bills must be reserved for the President’s approval.
Reduction of Salaries – The President may direct reduction in salaries and allowances of persons serving the Union or State, including judges of the Supreme Court and High Courts.
Executive Directions – Union may issue binding directions to States regarding financial propriety.
Centralisation of Fiscal Powers – Parliament acquires a dominant role in fiscal management, subordinating State autonomy.
Though never invoked in India, the provision of Financial Emergency underscores the precautionary design of the Constitution.