Article 360

Article 360 of the Constitution of India provides for the declaration of a Financial Emergency in cases where the financial stability or credit of the nation or any part thereof is threatened. It equips the Union Government with special powers to restore financial equilibrium, ensuring that the economic framework of the country remains secure during periods of fiscal distress.

Constitutional Framework and Purpose

The framers of the Constitution included Article 360 to safeguard India’s financial integrity, both at the national and state levels. The provision acts as a constitutional safety valve, enabling the central government to take corrective steps during situations such as severe economic instability, external financial shocks, or breakdowns in fiscal management.
This article forms part of Part XVIII of the Constitution, which deals with emergency provisions, placing it alongside the mechanisms for national and state-level emergencies under Articles 352 and 356. However, unlike those provisions, a Financial Emergency is intended to address economic crises rather than political or security threats.

Declaration of Financial Emergency

Under Article 360(1), the President of India may proclaim a Financial Emergency if satisfied that the financial stability or credit of India, or any part thereof, is endangered. The declaration takes the form of a Proclamation and comes into immediate effect upon its issuance.
The President’s decision is based on an assessment—often guided by economic indicators, recommendations from the Union Cabinet, or reports from financial institutions—that the financial situation has deteriorated to a point requiring extraordinary intervention.

Procedure and Parliamentary Approval

Every Proclamation of Financial Emergency must be laid before both Houses of Parliament under Article 360(2).

• If not approved by resolutions of both Houses within two months from the date of issuance, the Proclamation ceases to operate.
• If the Lok Sabha is dissolved during this period, the Proclamation continues until 30 days after the first sitting of the newly constituted Lok Sabha, provided the Rajya Sabha has approved it in the meantime.

The President may also revoke or modify the Proclamation at any time by issuing another Proclamation.

Effects and Operation During Financial Emergency

When a Financial Emergency is in force, the executive authority of the Union extends to issuing directions to any State for maintaining financial discipline. These directions may relate to the following:

• Reduction of salaries and allowances of persons serving under the Union or a State, including judges of the Supreme Court and High Courts.
• Ensuring that the financial propriety and expenditure patterns of the States conform to Union guidelines.
• Requiring States to observe specific measures aimed at restoring fiscal stability.

Thus, the Centre gains the power to exercise significant control over the financial operations of the States and other subordinate authorities, though without assuming direct administrative functions.

Constitutional Safeguards and Limitations

Despite its far-reaching implications, Article 360 imposes certain restrictions to prevent abuse of power:

• The President cannot assume the powers of any other constitutional authority in the State, distinguishing it from Article 356 (President’s Rule).
• State officials cannot be removed solely for implementing directions issued under this provision.
• The Union’s role remains supervisory and directive rather than substitutive.

These limitations preserve the federal balance even during economic crises, ensuring that the State governments continue to function within their constitutional domain.

Historical Context and Practical Experience

Although the Constitution envisages the possibility of a Financial Emergency, no Financial Emergency has ever been declared in India since the Constitution came into force.
The reference in some texts to financial crises during 1962, 1965, and 1971 pertains to economic difficulties faced during wartime, but no formal Proclamation under Article 360 was made. Nevertheless, the financial strain experienced during these periods influenced fiscal policies, taxation, and economic planning at the central level.
The cautious approach reflects the gravity of invoking Article 360, as it directly affects the fiscal autonomy of States and the economic rights of individuals.

Judicial Interpretation and Key Case Law

Although Article 360 has not been directly invoked, its scope and implications have been examined indirectly in landmark constitutional cases dealing with the balance of power during emergencies:

• Keshavananda Bharati v. State of Kerala (1973): The Supreme Court propounded the basic structure doctrine, holding that emergency provisions cannot be used to destroy the federal structure or fundamental rights.
• Minerva Mills Ltd. v. Union of India (1980): The Court reiterated that the balance between parliamentary authority and constitutional limitations forms part of the basic structure.
• State of Rajasthan v. Union of India (1977): Though related to Article 356, the judgment highlighted that even extraordinary powers under the Constitution are subject to judicial scrutiny and must not violate constitutional morality.

These cases collectively ensure that even during a Financial Emergency, constitutionalism and rule of law prevail.

Significance of Article 360

Article 360 holds immense constitutional and economic significance as a safeguard against fiscal breakdown. It ensures:

• Central oversight: Enables the Union to guide and regulate State finances in times of national crisis.
• Maintenance of creditworthiness: Protects India’s international financial reputation by allowing rapid corrective measures.
• Economic stability: Ensures continuity of governance and the protection of essential services during severe economic dislocation.

By institutionalising financial emergency powers, the Constitution provides a framework for crisis management without necessitating extra-constitutional measures.

Criticism and Concerns

Despite its necessity, Article 360 has been the subject of academic and political criticism:

• Threat to federalism: It potentially allows the Union to interfere extensively in State financial matters, undermining fiscal autonomy.
• Scope for misuse: Critics fear that the provision could be invoked for political motives under the guise of financial instability.
• Centralisation of power: The extensive directive powers of the Union during a Financial Emergency may disrupt the balance of Indian federalism.

Given these concerns, successive governments have exercised restraint in invoking Article 360, relying instead on economic reforms and cooperative federal mechanisms to address fiscal crises.