Foreign Policy Watch: India-Sri Lanka

Sri Lanka declares Economic Emergency


From UPSC perspective, the following things are important :

Prelims level: Financial Emergency

Mains level: Forex crisis in Sri Lanka

Sri Lankan President has declared an economic emergency to contain soaring inflation after a steep fall in the value of the country’s currency caused a spike in food prices.

Sri Lankan Economic Emergency

  • President Rajapaksa declared the state of emergency under the public security ordinance to prevent the hoarding of essential items, including rice and sugar.
  • The government has appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices.
  • The military will oversee the action which gives power to officials to ensure that essential items, including rice and sugar, are sold at government-guaranteed prices or prices based on import costs at customs and prevent hiding of stocks.
  • The emergency move followed sharp price rises for sugar, rice, onions and potatoes, while long queues have formed outside stores because of shortages of milk powder, kerosene oil and cooking gas.
  • The wide-ranging measure is also aimed at recovering credit owed to State banks by importers.

Why came such an emergency?

  • Sri Lanka, a net importer of food and other commodities, is witnessing a surge in COVID-19 cases and deaths which has hit tourism, one of its main foreign currency earners.
  • Partly as a result of the slump in tourist numbers, Sri Lanka’s economy shrank by a record 3.6% last year.
  • The Sri Lankan rupee has fallen by 7.5% against the US dollar this year.
  • The Central Bank of Sri Lanka recently increased interest rates in a bid to shore up the local currency.
  • According to bank data, Sri Lanka’s foreign reserves fell to $2.8 billion at the end of July, from $7.5 billion in November 2019.

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Back2Basics: Financial Emergency in India

  • The President of India can declare the Financial Emergency on the aid and advise of the Council of Ministers.
  • She/ He has to be satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened.
  • Article 360 gives authority to the President of India to declare a financial emergency.
  • However, the 44th Constitutional Amendment Act of 1978 says that the President’s ‘satisfaction’ is not beyond judicial review.
  • It means the Supreme Court can review the declaration of a Financial Emergency.

Parliamentary Approval and Duration

  • A proclamation of financial emergency must be approved by both the Houses of Parliament within two months from the date of its issue.
  • A resolution approving the proclamation of financial emergency can be passed by either House of Parliament (Lok Sabha or Rajya Sabha) only by a simple majority.
  • Once approved by both the Houses of Parliament, the Financial Emergency continues indefinitely till it is revoked.
  • It may be revoked by the President anytime without any Parliamentary approval (but with the usual aid and advice).

Effects of Financial Emergency

  • During the financial emergency, the executive authority of the Center expands and it can give financial orders to any state according to its own.
  • All money bills or other financial bills, that come up for the President’s consideration after being passed by the state legislature, can be reserved.
  • Salaries and allowances of all or any class of persons serving in the state can be reduced.
  • The President may issue directions for the reduction of salaries and allowances of: (i) All or any class of persons serving the Union and the judges of the Supreme Court and the High Court.

Try this PYQ:

With reference to the Constitution of India, prohibitions or limitations or provisions contained in ordinary laws cannot act as prohibitions or limitations on the constitutional powers under Article 142. It could mean which one of the following?


(a) The decisions taken by the Election Commission of India while discharging its duties cannot be challenged in any court of law.

(b) The Supreme Court of India is not constrained in the exercise of its powers by laws made by the Parliament.

(c) In the event of grave financial crisis in the country, the President of India can declare Financial Emergency without the counsel from the Cabinet.

(d) State Legislatures cannot make laws on certain matters without the concurrence of the Union Legislature.


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