Financial Emergency: Not Need of the Hour
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Financial Emergency: Not Need of the Hour

While India is battling with a pandemic, financial and economical threats are looming all around. Various schemes have come to the rescue such as a relief package worth INR 1.70 lakh crore, extending the dates for filing taxes, providing 15,000 crores for health infrastructure, waiving the requirement of maintaining certain minimum balance in bank accounts, and extending the date for filing tax returns. State governments have also introduced financial packages. Along with this, the Reserve Bank of India (RBI) has eased norms for insolvency and bankruptcy, MSME’s, etc.

Against this backdrop, there is a blooming of diverse and contrarian ideas by some sections of society. Recently, Public Interest Litigation was filed by Centre for Accountability and Systematic Change(CASC) in the Supreme Court seeking a declaration of emergency which was later on deferred citing it as not conducive to the situation. Fake news was also reported regarding probable declaration of financial emergency by PM Narendra Modi. Political leaders like Mr. Subramanian Swamy proposed the same idea. However, Finance Minister Nirmala Sitharaman said, “No move to impose financial emergency has been contemplated as was claimed by some reports” while addressing the media.

To ward off financial threats, an alternative paradigm is being proposed for financial emergencies. But does the current situation demand it? Let us analyse it.

Phase of worst financial crises

Turning the pages of history, Financial Emergency (FM) has never been imposed in our country even when the worst financial crises hit our country in 1991. The economy was in turmoil. Back then India was not on good terms with the western world and depended on the Soviet Union for its exports. But when the Soviet Union fragmented into 15 nations, those exports went significantly down. The US-Iraq war let to an exponential increase in oil prices. Unstable government was present. By June 1991, India had less than $1 billion foreign reserves, just about enough dollars to meet about three weeks of imports. The scenario was worse than today, where the nation had no international support, an ineffective government structure, and poor economic infrastructure all present at the same time.

In the current status quo, the financial economy is still secured and the legislative schemes, as well as international support, will sustain the nation’s financial status. The International Monetary Fund has set up emergency finance and has facilitated multilateral surveillance on crises and policy actions. The US has announced financial assistance to 64 countries including USD 2.9 million to India and China has provided medical assistance.

Consequences of FM

The provision of financial emergency (FM) has been enshrined in Article 360 of the Indian Constitution. The criteria for its proclamation is, if the President is satisfied that a situation has arisen whereby the financial stability or credit of India or of any part of the territory thereof is threatened, then financial emergency may be proclaimed.

To discern the status quo, it is essential to delve deep into the overriding challenges which India will confront if FM is imposed before reaching the conclusion that FM is the best possible solution for handling the situation. To shed light on it, let’s have a glimpse of the Constituent Assembly Debates in order to know the horizon and powers which the central government and President will yield and the potential lacunas which will result therein, if the provision is invoked.

Dr. Ambedkar introduced Article 280A drawing inspiration from National Recovery Act of the United States. He put it forth on table for further suggestions and amendments for the provisions of financial emergency. Primarily, Pandit Hirday Nath Kunzru put forward his apprehensions:

“The Centre will acquire complete control over the budget of the province and will be able to dictate both to the provincial government and the provincial legislature what financial policies they should adopt. This is not meant to enable the Central Government to deal with unemployment relief, or public works, or any of those problems whose solution would lead to economic contentment and add to the wealth of India..”

As said by Kazi Karimuddin, “emergency will lead to a conflict oftentimes between the Centre and the Provinces, and instead of breathing an atmosphere of independence, freedom and liberty, we will be subject to the utmost interference from the Centre and the president.” On the contrary, Prof. Shiban Lal Saexna proposed to enhance the powers of central government by allowing Parliament to make laws in State List as if they were in concurrent list during emergency to avoid centre-state conflict and Sh. Brajeshwar Prasad added that the emergency should last till the President deems fit. Finally, Mr. Sidhva concluded by these wording, “I am confident that the President whosoever he may be, he will exercise his power rightly, and interpret this article in the right sense and in the right manner and for the benefit of the country.” Thus, the apprehensions around potential misuse of powers were rejected.

The government was not vested with a wanton amount of powers and the above suggestions were rejected on the ground that then the executive will alone play a dominant part in the national life. But Mr. Saxena’s apprehensions are somewhat relevant in the present situation where matters like public order, health, sanitation, hospitals, etc. fall under State List and are at centre stage during the pandemic. Gulfs will arise between the centre and state government when the executive will have the authority to give directions to observe canons of financial propriety and state will at certain instances lack the authority to enforce legislation of their own which falls under state list because of the centre’s dissent for the financial allocations demanded.

Individuals and even the think tank CASC (as highlighted in the petition) demanded FM under the impression that the emergency will address the situation through constitutional provisions and not open the door for police actions. Statutes like Section 144 prohibit gatherings of more than four, and empower police to arrest anyone who violates the orders promulgated by the government under Section 188 of Indian Penal Code (IPC). Police are additionally empowered to arrest individuals for violation of quarantine restrictions once Section 271 of IPC is applied. But financial emergency empowers the central government to give directions limited to financial matters which was also highlighted by Dr. Munshi, “In a financial emergency there cannot be greater privilege than all financial affairs which shall be controlled and directed from the centre.

A measure like emergency under article 359 which confers powers to the president to suspend fundamental rights (except article 20 & 21) might lead to public dissent and thus aggravate the situation. At the core of emergency-related legal issues is the need to balance individual and state interests to protect the public’s health. Balancing respective legal interests in emergencies is complex. The interests of individuals and the state may conflict, leading to difficult issues in the establishment and implementation of community objectives.

It is claimed that through the declaration of emergency Central and State government will work in a unified manner but during FM, the President can reduce the salaries of all government officials, including judges of the Supreme Court and High Court. The fundamental support is being provided by the administration staff and bureaucrats of government and the fear of reduction in salaries or other similar measures can divert their attention from their main focus to control the widespread effect of the disease.

Effective Legal Statute

Although financial adversities are stumbling blocks emergency is declared under grave circumstances where the legal methods have exhausted and it is the last recourse available. COVID-19 can be encompassed under Section2(d) of the Disaster Management Act, 2005, which deals with the definition of disaster as COVID-19 is a grave occurrence arising from natural causes. To shed light on the financial perspective, Section 12 deals with the requirements to be provided with things like cereals, shelter, and provisions for senior citizens, ex gratia assistance for restoring livelihood and such other reliefs which are deemed to be necessary. Moreover, Section 13 provides for recommending relief in repayment of loans or for grant of fresh loans to the persons affected by disaster on such concessional terms as may be appropriate. These sections address the rising trade of concerns for facilitating relief to the unorganised sector, small-scale industries, micro enterprises, etc where short-term loans, food essentials will be provided. Let us also highlight the phrase ‘other phase’ where government can lay down any number of relief measures for restoring standard livelihood.


The above article aimed at describing how financial emergency is not conducive to the situation through legal various prospectives. It is essential to understand that under current paramaters where effective legal statues for tackling the financial crises are present, inevitable consequences will follow if financial emergency is invoked.

Aarushi Gupta is a student at Dr. Ram Manohar Lohiya National Law University, Lucknow, India.


Suggested citation: Aarushi Gupta, Financial Emergency: Not Need of the Hour, JURIST – Student Commentary, April 22, 2020,

This article was prepared for publication by Tim Zubizarreta, JURIST’s Managing Editor. Please direct any questions or comments to him at

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