What Is TARP And Why Is India Discussing It Right Now

India is confronting the fifth straight quarter of slipping economic growth. The private investments in India are considerably not adequate in volume to support the economy’s growth momentum to remain on the positive side. Hence, the government might come under pressure to take the necessary steps to keep the economy running. Especially during the current financial year, the government is contemplating on several measures to boost up the slumping economic growth. One such measure could be similar to what is known as TARP. Here we try to understand what is TARP and the scenario in the country that is making India talk about TARP right now.

What is TARP?

TARP, expanded as the Troubled Asset Relief Program was an innovative measure launched by the U.S. Treasury in order to stabilize the financial system of the country, restore the growth of economy and prevent foreclosures during the wake of the financial crisis that struck the US in 2008. TARP achieved these above mentioned targets by purchasing the stocks and assets of the troubled companies.

2008 Financial crisis striking the US credit market

In September 2008, credit markets across the globe came to a standstill and a severe financial crisis took over major money lending companies like Fannie Mae, Freddie Mac, and American International Group (AIG). Companies like Lehman Brothers filed for bankruptcy. For stabilizing their capital situation, investment entities like Goldman Sachs and Morgan Stanley altered their charters to turn into commercial banks.

TARP was a solution innovated by the US

In order to ease the situation, stabilize the financial situation and support the slumping economy, the US launched the Troubled Asset Relief Program (TARP) through which the US government bought mortgage-backed securities and bank stocks. Through TARP, the US government invested $426.4 billion in companies and recouped $441.7 billion in return in two years.

The need for US to contemplate on TARP

With the financial system in the country seeming to spiral out of control during those days, the Treasury Secretary of the US Henry Paulson brought out the Troubled Asset Relief Program (TARP). On October 3, 2008, President George W. Bush signed TARP into law leading to the passing of the Emergency Economic Stabilization Act. TARP was a controversial move during those days. Till date the effectiveness of TARP is being debated. Supporters of TARP say it helped save the US economy and shorten the severe financial crisis. On the other hand, the critics of TARP say it only gave a no-strings boost to Wall Street.

Will India go for a program similar to TARP now?

In a recent press meet, the RBI governor gave a hint that a program similar to that of TARP could be thought of by the government in India also. However, he did not explicitly say if RBI was considering a similar move. TARP during 2008 in the US could prevent the collapse of some of America’s marquee banks. If something like TARP could come through in India, the resulting surplus liquidity might ease the financial situation.