India is readying an economic package, including financial aid, to help revive Nepal's economy if the new government that is set to assume office in the Himalayan kingdom in the next few days seeks such assistance.

As thousands of people held a victory rally in Kathmandu on Tuesday after King Gyanendra announced late Monday night that he was reinstating Parliament, the mood in the Ministry of External Affairs in New Delhi was mainly one of relief.

• The Nepal Crisis

The Seven Party Alliance which led the pro-democracy campaign has named former prime minister Girija Prasad Koirala as the new head of government.

"The economic situation is the biggest challenge. Once the new government takes over, we will move in with an economic package that will include financial assistance, as soon as it becomes necessary," official sources said.

The package would also include measures to ensure resumption of supplies of essential commodities to Nepal, such as food and fuel, they said.

According to them, the routes to Nepal from India will once again open, and trucks which were stranded on the Indian side because of the disturbances of the past three weeks, would resume their journey soon. As many as 24 trucks had crossed over into the kingdom on Monday, they said.

However, a decision on resumption of arms supplies to Nepal will be taken only after consultations with the new government.

"Unless a new government is in place, and unless the government makes such a request, there is no way we can decide on this," the sources explained.

Officials in New Delhi believe that, in the interim period when the new government settles down and tries to revive the economy, especially revenue flows, only India can provide the kind of economic assistance that Nepal needs at this juncture.

India is also convinced that a multi-party democracy, in which the monarchy plays only a constitutional and symbolic role and the Maoists abandon violence as a political tool, is the best option for Nepal in the years ahead.

In this context, India sees a ray of hope in the commitment made by the Maoists to multi-party democracy and electoral exercises. It is also confident that the SPA will hold together for the foreseeable future.

In the weeks ahead, New Delhi will also watch closely how King Gyanendra adjusts to the new realities and whether he emerges as a source of stability in the kingdom.

Since early April, when the pro-democracy protesters came out onto the streets of Kathmandu, India has played a key role in nudging King Gyanendra towards transferring power to the people.

These efforts included a visit by Dr Karan Singh as the prime minister's special envoy to Kathmandu last week, when he held talks with political leaders as well as the King. Foreign Secretary Shyam Saran also flew to Kathmandu to help in the discussions.