Part XVIII of our Indian Constitution puts forth certain situations wherein an emergency can be declared. Out of all the three forms of emergency, the emergency declared on failure of constitutional machinery is frequent. Declaration of national emergency has become dormant since 1977 and our republic has not seen any financial emergency as of yet. In the past few months, the whole nation has come to a standstill due to the spread of COVID-19 pandemic. A truly unprecedented situation has occurred which has affected almost every industry and household drastically.

The Constitution of India under Article 360 provides for the provisions of Financial Emergency. The condition precedent for invoking the said provision as enshrined in our constitution 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. Article 360 further enables the president to proclaim a Financial Emergency upon satisfaction that the financial stability or credit of India is under threat. The satisfaction of the president in reality means the satisfaction arrived at on the aid and advice of the Council of Ministers, as per settled judicial position to this effect.

In the year 1991, there was a Balance of Payment crisis which led to a situation where the then Government was on the verge of imposing a Financial Emergency. The condition of Indian economy was volatile however, with much needed and timely intervention of the then government, the situation was somehow controlled. India thus was saved from the state of financial emergency.  

In such circumstances, there were three possible solutions:

1. Minting - Releasing of new currency notes. This could have possibly led to an inflation.
2. International Help – Considering the fact that India was already under a lot of loan, this did not seem like a feasible option.
3. Help from Domestic Sources – Due to inflation and low economy, even this option was struck out.

Subsequently, the then Government headed by Late P.V. Narasimha Rao as the Prime Minister, brought out the policy of Liberalisation, Privatisation and Globalisation (LPG). With this reform, a strategy was formulated wherein there was an abolition on all the export subsidies, trade policy reforms and industrial policy reforms. there were liberalised regulations and licensing controls on exports and foreign direct investments were brought into force so as to bring about Public Sector Reforms. Apart from export subsidies, there was a complete abolition imposed on industrial licensing as well.

Even on the political forefront, this was a phase which re-shaped the structure of Indian economy. This also created a mark of identity for Dr. Manmohan Singh, the then Finance Minister.

It is to be always kept in mind that the declaration of emergency is always a last resort. There is a reason that the Government has refrained from declaring emergency all these years. Before one can actually declare an emergency, it needs to be ensured that all the available legal remedies have been exhausted and there is no other way out. The complexities of our federal structure and socio-political dimensions are also important subjects that precedes any such event.

Section 2(d) of the Disaster Management Act, 2005 defines a disaster as:

Disaster means a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area.

If we take the situation of the current pandemic into consideration, COVID-19 can conveniently be fit into the category of a disaster' covering the criteria grave occurrence, natural cause, substantial loss of life and beyond coping capacity.

On the financial forefront, the entire nation is undergoing a huge loss on daily basis. The world economy seems to be in ICU and Indian economy is not an exception. The unprecedented calamity literally forced government to announce and enforce lockdown, which was the only remedy to control the damage which this contagious COVID-19 had potential of in terms of taking toll on lives of people. Though, with lockdown the government seems to have contained the spread of this disease however, the lockdown has its own costs- on the economy.

The economy is in distress mode and even best of the policy makers and finest economists are not yet in position to ascertain what damage, in terms of economy, this lockdown has caused and would continue to cause in coming years.  It is interesting to note here that although the finance minister Nirmala Sitharaman had ruled out imposition of financial emergency however, certain action on part of government speaks of undeclared financial emergency albeit, not in explicit terms.

The parliament resolving to cut the salaries of Members of Parliament, government announcement temporarily halting  the increment on DA of government employees and several other austerity measures announced by union government as well some of the state governments  are itself self-evident arguments about the economic catastrophe which is looming at present.

A petition has been filed before the Supreme Court of India by Centre for Accountability & Systematic Change seeking imposition of Financial Emergency. The Apex Court has adjourned the matter for two weeks. It would be interesting to see the outcome of the said proceedings currently pending before the Apex Court.

Per contra, it could be argued that imposition of financial emergency would have its own adverse consequences on economy let aside the political-legal complex challenges under our federal structure. The government is currently faced with dual challenge- to save lives of its people and also to safeguard economic interests of nation. The merits and demerits of financial emergency is a subject of lengthy and non-ending debates as those who support and those who oppose the financial emergency have their own arguments.

That said, the current crisis which our country is facing has to be dealt with strong and effective policies and imposition of financial emergency could be one of such moves. The government could not simply shut its eyes on large scale inequality prevailing in our society. This pandemic has only added woes to much unequalised distribution of wealth in India. We have to understand the agony and pain of marginalized strata of our society.

Whenever this lockdown is lifted, and businesses are back to normal- things would certainly not be conducive. The unholy gap between have' and have not' would further result in damaging the prospects of the country. The government has to come up with certain set of well formulated policies to control the damage which this pandemic would cause to economy. Be it imposition of financial emergency or not, is the matter which should be left to the wisdom of government.

Written By: Dr Farrukh Khan is an Advocate and Managing Partner of Law Firm- Diwan Advocates. Somya Mishra is an Advocate, working with Diwan Advocates