“The Emergency” refers to a 21-month period in 1975–77 when Prime Minister Indira Gandhi unilaterally had a state of emergency declared across the country. Officially issued by President Fakhruddin Ali Ahmed under Article 352(1) of the Constitution for “internal disturbance”, the order bestowed upon the prime minister the authority to rule by decree, allowing elections to be suspended and civil liberties to be curbed. In the face of massive political opposition, desertion and disorder across the country and the party, Gandhi stuck to the advice of a few loyalists and her younger son Sanjay Gandhi, whose own power had grown considerably to become an “extra-constitutional authority”.

For much of the Emergency, most of Gandhi’s political opponents were imprisoned, many political & social organizations were banned and the press was censored. Several other atrocities were reported from the time. In Feb 1976, Indira managed to extend Loksabha’s duration by one more year. In Jan 1977, her own department did a survey and told her if she held the election during the Emergency she would return to power.Also Indira believed that the opposition was splintered and that elections would only accentuate the divide among them. And by winning the elections she could legitimise the Emergency and all that happened as part of it before the international community and also to formalise Sanjay Gandhi’s position. That, perhaps was the reason why she chose to announce the dissolution of the Lok Sabha on January 18, 1977. It was a courageous decision, considering the fact that she was under no visible compulsion to do so.

However opposition parties united together under leadership of Jayprakash Narayan and defeated Congress. Now that the political winds had changed and the opposition was in power with landslide majority and the emergency was still in effect, technically she found herself and her allies on the receiving end. She obviously couldn’t change the law overnight. So, she called off the emergency on 21^st March and resigned the next evening on March 22, 1977.

Reference:

http://www.indianage.com/search.php

http://en.wikipedia.org/wiki/The_Emergency_(India)

https://www.mtholyoke.edu/~ghosh20p/page2.html

http://www.quora.com/Why-did-Indira-Gandhi-suddenly-withdraw-emergency-in-1977