Sri Lanka’s Economic Emergency

Topic 

Sri Lanka’s Economic Emergency

Context
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.

About Sri Lanka declares 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 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.

Financial Emergency in context of India
Part XVIII (Article 352-360) of the Constitution of Indian talks about the Emergency Provisions. In particular, Article 360 talks about the Financial Emergency. It is one of the three types of emergency provisions embedded in the Indian Constitution. The other two are:
• National Emergency – Article 352
• Emergency due to the failure of the constitutional machinery in the states
   – President’s Rule – Article 356

Article 360
• Article 360 of the Indian Constitution empowers the President to invoke financial emergency.
• Grounds of declaration – If the President is satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened.
• 38th Amendment Act of 1975 – The satisfaction of the president in declaring a Financial Emergency is final and conclusive and not questionable in any court on any ground.
• 44th Amendment Act of 1978 – deleted the provision added by the 38th Amendment Act of 1975, which implies that the satisfaction of the president is not beyond judicial review (that is, it can be challenged in court).

Parliamentary Approval and Duration
• A proclamation declaring financial emergency must be approved by both the Houses of Parliament (i.e., Lok Sabha and Rajya Sabha) within two months from the date of its issue.
• If such proclamation is issued at a time when the Lok Sabha has been dissolved or the dissolution takes place during the two months without approving the proclamation, then the proclamation survives until 30 days from the first sitting of the Lok Sabha after its reconstitution, provided the Rajya Sabha has in the meantime approved it.
• After approval of both the Houses of Parliament, the Financial Emergency continues indefinitely till it is revoked.
Note:- There is no maximum period prescribed for its operation, Repeated parliamentary approval is not required for its constitution.

Approval of a financial emergency
• A resolution approving the proclamation of financial emergency can be passed by either House of Parliament only by a simple majority (that is, a majority of the members of that house present and voting).
• To read more about the types of Majorities in the Indian Parliament, check the linked article.

Revoking a financial emergency
A proclamation of Financial Emergency may be revoked by the president at any time by a subsequent proclamation. Such a proclamation doesn’t require the approval of Parliament.

Consequences of Financial Emergency
The consequences of such a declaration are as follows:
1. The Union government shall give directions to any State to observe such canons of financial propriety as may be specified in the directions.
2. The directions may include:
    o The President may order the States to reduce the salaries and allowances of all or any class of employees                serving in connection with the state of affairs.
    o Money bills or other financial bills are to be reserved for the consideration of the President after they are                 passed by the Legislature of the State.
    o Also, the President can issue directions for the reduction of salaries and allowances of all or any class of                 persons serving in connection with the affairs of the Union, including the Judges of the Supreme Court and             the High Courts.

Criticism
• The Union government gains complete authority over States in respect to financial matters during the period of financial emergency.
• This causes a threat to the State’s financial sovereignty.
• According to H N Kunzru, ‘the financial emergency provisions pose a serious threat to the financial autonomy of the States.’

Significance
• One of the Constitution makers, Dr BR Ambedkar explained the inclusion of financial emergency provisions in the Constituent Assembly as, ‘this article more or less follow the National Recovery Act, 1933 of the United States, which gave the President power to make similar provisions in order to overcome the difficulties of American people caused as a result of the Great Depression of the 1930s.
• Situations like economic recession or any other financial crisis can be easily averted by financial emergency provisions.