Finance Commission – Issues related to devolution of resources

Call for imposing Financial Emergency in Kerala


From UPSC perspective, the following things are important :

Prelims level: Financial Emergency under Article 360

Mains level: Not Much

In the news

  • The Supreme Court proceeded with hearing a suit filed by the State of Kerala against the Centre for alleged arbitrary interference in its financial matters, following unsuccessful negotiations between the two parties.
  • Earlier, Kerala Governor sought for the Presidential imposition of a financial emergency in the State under Article 360(1) of the Constitution due to dwindling situation of finances in the State.

What is Financial Emergency?

  • Enshrined in Article 360: It is a vital provision aimed at addressing severe financial crises threatening India’s economic stability.
  • Declaration and Authority: It can be declared by the President upon satisfaction that the financial stability or credit of India or any part of its territory is under threat.
  • CoM Advice: The declaration is made based on the advice of the Council of Ministers, reflecting the collective responsibility of the executive branch.

Legislative Approval

  • While the President can proclaim a Financial Emergency, its extension beyond two months needs approval from both Houses of Parliament.
  • Once approved, it remains in effect until revoked by the President, allowing for flexible management of financial crises.

Effects and Implications

  • The Centre’s executive authority expands significantly during a Financial Emergency, enabling it to issue directives to states on financial matters.
  • Centralization of fiscal policies occurs, with the President empowered to reserve money bills passed by state legislatures for consideration.
  • Austerity measures, including salary and allowance reductions for public officials, can be implemented to address economic challenges.

Judicial Review and Criticism

  • 38th Amendment Act (1975) made the President’s decision final and immune from judicial review.
  • However, the 44th Amendment Act (1978) allowed for judicial scrutiny.
  • This amendment ensured checks and balances within the constitutional framework, preventing unchecked executive authority.

Historical Context and Usage

  • Financial Emergencies have been sparingly invoked in India’s history, despite facing significant financial crises such as in 1991.
  • The cautious utilization of this provision underscores the importance of aligning its implementation with democratic principles and federalism.


  • The Supreme Court’s intervention in the Kerala-Centre financial dispute underscores the importance of cooperative federalism in addressing intergovernmental conflicts.
  • The forthcoming hearings aim to reconcile differences and ensure the equitable distribution of resources, fostering harmonious relations between the Centre and states.

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