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Friday, January 04, 2019

Pick your poison: Money bill privilege or government shutdown?

by Pratik Datta and Radhika Pandey.

On January 2, 2019, the government introduced a bill in the Lok Sabha to amend the Aadhaar Act, 2016. Once again, the opposition is up in arms. Once again, there are apprehensions that this amendment bill will be certified as a money bill to avoid the opposition parties in the Rajya Sabha. In a parallel development, Jairam Ramesh filed a review petition against the Puttaswamy decision last week. The majority of the judges in that case had upheld the enactment of the Aadhaar Act, 2016, as a money bill. They refused to let judicial review be used as an institutional check to prevent abuse of money bills by Lok Sabha. The lone dissent was by Justice Chandrachud, who referred to such abuse as a `fraud on the constitution'. Ramesh's review petition now seeks to reopen this issue.

In this backdrop, this post revisits the basics to better appreciate the rationale for the Lower House's money bill privilege. In doing so, we highlight two extreme constitutional designs to overcome a common problem - how to decide on the funding for government agencies?

The problem

All government agencies need funds to function. These funds need to be appropriated from the state's finances every year. In liberal democracies, this funding decision cannot be left to unelected executives. Instead, the citizens through their elected representatives should have a say in this - should funds be released to the government? If so, how much? Consequently, the legal mechanism for such annual appropriation requires the citizens' elected representatives in the legislature to pass an appropriation bill into a law. In India, money bills perform this critical function (see Article 110(1)(d)).

In a bicameral legislature, an ordinary bill becomes a law usually after it is approved by the Lower House, the Upper House and the President. If the bill fails to receive approval from any one of them, it does not become a law. In that event, the prior law continues. Life moves on. Not so for an appropriation bill (or money bill in India). Failure to enact such a law would result in a funding crunch, potentially causing a government shutdown.


There are broadly two different ways of resolving this problem.

The simpler solution is to leave it to negotiation among politicians in the Lower House and the Upper House, and the President. This option is costly because of coordination and hold-up costs. And till the negotiated solution is reached, the government remains shutdown, wasting huge public resources.

An alternative solution is to reduce the number of approvals needed to enact an appropriation bill into a law. The Lower House, being directly elected, could be empowered to enact an appropriation bill into law without any approval from the Upper House and the President. However, there is a flip side to this arrangement. The Lower House could abuse this privilege by camouflaging ordinary bills as appropriation bills to avoid opposition from Upper House and the President. Consequently, this arrangement may resolve the government shutdown problem at the cost of diluting the sanctity of the bicameral legislature itself.

Interestingly, the efficacy of these two different solutions are currently being tested in one of the world's oldest democracies - the USA - and the world's largest democracy - India.


The American federal government has been partially shutdown since December 22, 2018. This is the 3rd shutdown of the US federal government in 2018 and the 21st in American history. However, this is the first shutdown of any significant length since 2013, when the government was shut for 16 days. Such government shutdowns arise out of failure to enact appropriation laws.

Under the American constitution, the House of Representatives (Lower House) alone can introduce an appropriation bill. The Senate (Upper House) cannot do this. An appropriation bill passed by both the Lower House and the Upper House must also be approved by the President to become an appropriation law. A direct consequence of this constitutional design is that either the Upper House or the President could block an appropriation bill, starving the federal government of funds. Further, the Anti-deficiency Act prohibits American executive branch agents from authorising expenditures or obligations in excess of the amount appropriated by Congress. Consequently, failure to pass an appropriation law results in government shutdown in the USA.

The ongoing shutdown started when President Trump refused to approve the appropriation bill for the budget for the current fiscal year that began on October 1, 2018. The President refused to approve the bill since it did not provide necessary funds for building the wall on the US-Mexico border. There are now two options to break this deadlock. Either, the proponents of the budget could negotiate with the President to get his approval on the appropriation bill. Or, the bill could be enacted even without President's approval, if a super-majority (ie. two-third) in each House approves the bill.

Both these routes require hard bargaining and trade-offs by Congressmen across party lines. The reason America accepted this cumbersome constitutional design is possibly best captured in Alexander Hamilton's following observation: "[t]he injury that may possibly be done by defeating a few good laws will be amply compensated by the advantage of preventing a few bad ones".


India seems to have adopted the exact opposite position. Our constitution, as interpreted by the Supreme Court, favours having a few good laws at the cost of suffering a few bad ones. After the Puttaswamy judgment, the Indian Lower House could potentially enact any bill, appropriation bill or not, into law using the money bill route. In the process, it can completely bypass any opposition from Upper House or the President. Even judicial review is not permitted. Consequently, there is currently no institutional check on potential abuse of money bills by the Lok Sabha. If left unchecked, such abuse may very well end up being the death knell of our bicameral model of legislature. However, from the perspective of resolving government shutdowns, the Indian system is undoubtedly efficient. India never experiences government shutdowns for failure to enact appropriation laws like in USA.


Is this trade-off worth it? The Indian Supreme Court may soon find itself asking this question. Jairam Ramesh's review petition offers the Supreme Court yet another opportunity to revisit this critical constitutional issue.


Pratik Datta and Radhika Pandey are Researchers at the National Institute of Public Finance and Policy.

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