Despitedenial of Union Finance Minister and strong rebuttal by the PIB, the socialmedia continued with a narrative that the financial emergency in India is notruled out, another first of Modi Govt if ever it is imposed. It started with atweet of Subramanian Swami on 21st March, 2020- “Is declaration of financialemergency becoming inevitable? Govt must put doubts to rest”- followed by anarticle, ‘Narendra Modi Likely to Declare Financial Emergency in India’ by ayoung entrepreneur, Nitin Naresh in a little known magazine “Inventiva” whichcreated a storm. His piece prophesied that the President may declare a state offinancial emergency which went viral on social media forcing PIB to rubbish itas “malicious and fake” saying that “there is no such plan.”
Faced withtrolls on social media & threat of FIR, Nitin tried to clarify that it wasan opinion piece, alerting the people about this possibility so that they don’tencounter it unprepared as they did in case of demonetisation in 2016.Describing it a worst kind of financial crisis of independent India and PM Modias ‘Khatron ke Khiladi”, Nitin clarified that he did not say that it willhappen but “likely” to happen.
India’seconomic condition in the backdrop of pandemic Covid-19 and nationwide lockdownis worrisome with Finance Minister and RBI announcing a slew of measures.including financial package of 1.70 lakh crore for the hard hit people and thesectors; Rs. 31000 crore for construction sector; increased wages under MGNREGA& ex-gratia payment to 30 million poor senior citizens along with insurancecover for frontline 2 million medical personnel; Rs. 15000 crore for immediatestrengthening of the health infrastructure and procurement of PPEs & otheritems of protection to health workers & other COVID warriors. Besides, freecereals and cooking gas, cash through direct transfers for three months beingprovided to about 800 million people. Lakhs of labour & skilled workerskept in camps near State borders are being fed and all these things needresources which are under unprecedented stress with practically no revenuecollection to augment State’s kitty.
The Covidhas a long lasting & frightening effect on the economy which might pushIndia to unprecedented fiscal crisis leaving Modi Govt with no option but to goin for unusual measure, be it unpopular, to mop up resources to face thefinancial crisis. The Govt has already started this by freezing of DA & DRto employees & pensioners respectively from January to July 2021 that alonecreated a resource of about Rs. 85,000 crores. Thirty percent cut in the salaryof the President, Vice President, PM, Union Ministers, MPs, Governors & LtGovernors and freezing of CDF of MPs for two years is a desperate action tocobble together resources. All these may not add up much to kitty but it doessend a distress signal about the deteriorating fiscal conditions of the Govt.of India. Whether Financial Emergency isannounced in one of Modi’s ‘8PM’ addresses to the nation or remains aspeculation, it is still important to know what it is all this about.
TheConstitution of India has vested special powers in the President of India todeclare three types of emergencies.
1.Nationalemergency- imposed due to war, external aggression or armed rebellion underArticle 352; imposed during wars with China ( 26th October, 1962 – 10th January1968) & Pakistan( 3rd December,1971-21st March, 1972).
2. Stateemergency – imposed due to the failure of the constitutional machinery in astate, popularly known as ‘President Rule” under Article 356. It is used veryoften.
3. FinancialEmergency- due to a threat to the financial stability under Article 360 but notyet imposed.
A state ofemergency means the governance directly under the Central Govt with suspensionof certain constitutional provisions. The breakdown of constitutional machineryin a State that facilitates President’s Rule under Article 356 has been used,albeit misused, very frequently. Punjabhappened to be the first State of Independent India to come under President’sRule as early as on 20th June, 1951 with Assembly kept under suspension. Itlasted for 9 months & 28 days till State Congress got its acts together.Since then, this provision has been used 131 times, maximum ten times inManipur followed by 9 times in J&K & UP States. Incidentally, thelongest spell of President of six years and 264 days (19 Jan, 1990-9 Oct, 1996)was imposed in J&K.
Theemergency declared on 25th June, 1975 under controversial circumstances ofpolitical instability using the earlier expression in Article 352 of “internaldisturbance” following Allahabad High Court historic judgment in an electionpetition which seated PM Indira Gandhi. The emergency lasted till 21st March1977. By the Constitution (forty-fourth Amendment) Act, 1978 the words”internal distances” were substituted by “armed rebellion” to prevent itsfurther misuse. It was initiated by Morarji Deasi led Janata Party Govt.
Article 360empowers the President of India to declare by a Proclamation (of course, onrecommendation of the Union Cabinet) Financial Emergency in the country if heis satisfied that a situation has arisen due to which the financial stabilityor credit of India or any part of its territory is threatened. During thisemergency, the executive authority of the Union can give directions to anyState to observe “such canons of financial propriety as specified in direction”and to give “such other directions as the President may deem necessary for thepurpose”. All Money and Financial Bills shall be kept for the consideration ofthe President before these are passed by the State Legislature.
Thisprovision also empowers the President to issue directions to the State or theUnion for “reduction of salaries and allowances of all or any class of personsserving in connection with the affairs” of a State, or the Union including theJudges of the Supreme Court and the High Courts. Thus during this exigency, theCentre gets full control over States’ financial matters, which is considered athreat to the state’s financial autonomy and federal structure.
Can thepension and the dearness relief (DR) of pensioners be reduced during FinancialEmergency as of the serving employees? There is no mention of reduction inpension of retired employees of the Govt and retired Judges. On this issue, there is some difference ofopinion among constitutional experts but majority of them are of the opinionthat the salary and allowances mentioned in the sub clauses 3 (a)(i) and (b)doesn’t cover pensioners but only those who are “serving in connection with theaffairs” of a State or the Union.
Thisprovision was brought in by Dr. B R Ambedkar as draft Article 280A very late on16 October, 1949 when the Constituent Assembly was doing second reading of thedraft Constitution. He said that he was inspired by the USA’s National RecoveryAct of 1933 to deal with aftereffects of the great economic depression. Hejustified it by saying since US Supreme Court had declared it asunconstitutional the President could hardly do anything to combatdepression. In the event of similarfinancial & economic situation in India, he said, it was “better to make anexpress provision in the Constitution itself.” While Prof Shiban Lal Saxenawanted power to Parliament to make laws on the subjects in the State list, M VKamath ridiculed it by saying that the President might consider deficit budgetsas threat to financial stability. R K Sidhva countered it by saying that if hefeels like this then he would not be worthy of this position. Pt Hirday NathKunzu cautioned against distrust to Provinces & treating then as children& the President as a village school Master. The Assembly finally ceded tothe appeal of K N Munshi and approved the provision of Financial Emergencyrespecting the need for financial integrity without giving unbridled powers tothe Centre.
In India,economic crisis of 1991 was the worst ever, which can hardly be compared withthe present situation despite having projected zero growth due to lockdown. The1991 crisis had roots in 1985 when India had landed in a twin deficit: tradebalance ran into deficit with imports swelling on one hand and on the other, alarge fiscal deficit. In January 1990, India was left with Foreign Exchange Reserves of US $ 1.2 billion, whichfurther depleted by half in June, 1990, hardly sufficient for three weeks’ of essential imports and weeksaway from defaulting on its external balance of payment obligations. Chandrasekhar Government could not presentthe budget. With global credit-ratingagencies downgrading India from investment grade making it impossible to evenget short term loans.
At thattime, the World Bank and IMF had stopped their assistance, leaving IndianGovernment with no option but to pledge 67 tons of gold with IMF, 47 tons ofgold to Bank of England & 20 tons ofgold to Union Bank of Switzerland and secured loan of $2.80 billion to avoid default on payments. Today’s situationis in no case as bad as of 1991. As compared to mere $1.2 billion ForexReserves in 1991, it stood at US $ 479.57 billion on 25th April, 2020, perhapshighest ever.
While thereis no ground for invoking Financial Emergency but some of the developments infinancial and economic front following nationwide lockdown would push thenation towards a possible crisis. Eighty percent of Indian companies are askingits employees to work from home while many companies have sent their staff onunpaid leaves and a few quietly terminated the contracts. All financial centresare shutdown. The unemployment has multiplied reaching highest ever with GDPcrashing down. Many sectors have noactivity as these can’t be operated from home. The Stock Markets are fallingand foreign investors are pulling out of the market. Impact of thesedevelopments is long term and huge for India and revive economy is no less aherculean task. Can Modi deliver it in post- Covid with or without FinancialEmergency?