The package of measures seems to be well thought-out, and has an overall coherence which augurs well. The approach seems to be to first strengthen the financial system, by restoring confidence among investors in the capital markets, then offer some good investment alternatives in the form of fresh PSU stocks, and subsequently utilise these and other funds raised for a sustained infrastructure development programme, which should lead to a surge in economic activity. If that happens, large projects in steel and cement put up in the last three years can finally startearning a return on their investments. There will, of course, be a corollary effect on the downstream sectors and in banking and finance.

Towards meeting that end of restoring confidence in the financial system, the PM has reiterated the government's support for the Unit Trust of India. More importantly, he has taken the decision to identify and punish promoters who had duped investors during the boom years. Being fleeced by unscrupulous promoters was one of the main reasons why the retail investor had turned away from the market, and the proposal, if implemented together with monitoring the end-use of funds, may result in small investors coming back to the market, especially if the secondary market picks up.

The decision to allow the buyback of shares is a major concession given to companies and should be boost the stock market, besides being a powerful tool for enhancing shareholder value. The bear market has driven down the value of many decent scrips to ridiculous levels, and buyback will allowcompany managements to keep their share prices at more realistic levels.

Much will, however, depend on the kind of rules that the Securities and Exchange Board of India (Sebi) will formulate to prevent buybacks becoming a tool for manipulation in the stock market. Enhancing the creeping acquisition norms to 5 per cent, in terms of the recommendations of the Bhagwati Committee, would also be a reasonable alternative for companies with good long-term potential, but short-term cash-flow and profitability problems, for promoters to buy equity from the marketplace.

The introduction of buyback of shares should be used as the first step towards the disinvestment process, since individuals having switched to cash will not be averse to the idea of reinvesting in assets perceived to be as safe as PSU stocks. And if PSU stocks are offered at a discount to the small investor, the profits the investor makes on those stocks are likely to be reinvested in the markets, sparking off a virtuous circle. The initial reactionto buyback and the other proposals has been very good, as seen in stock prices in kerb trading on Saturday.

But the eventual response of the companies themselves will have to be seen and will determine the lasting impact on share prices. For example, companies such as Hindustan Lever, Novartis and Infosys Technologies belonging to high profile sectors such as fast-moving consumer goods, multinational pharmaceutical companies and software will not bother to engage in an exercise to buyback their shares. Simply because the prices of these shares are pretty high in the first place. And of the remaining sectors most companies do not have the resources to buy back their shares, with the exception of a handful of companies such as Reliance, Great Eastern Shipping, Bombay Dyeing and Bajaj Auto.

The implications of the buyback proposal will go beyond the short-term response of the stock market to more complex corporate-finance issues, regarding how companies can plan the capital structure and eventually fundlarge projects. Earlier companies were married to their equity capital. But now heavily equity-funded companies such as oil refineries with future assured free cash-flows will have the option of eventually improving shareholder returns. The implications for buybacks as a defence against takeovers are obvious. So far as the decision to kick start investment in infrastructure is concerned, the big question is the money.

Disinvestment is, therefore, crucial to the government's plans to garner the resources for spurring growth. Even if the rally in the market proves to be short-lived, that should not deter the government from going ahead with disinvestment. The crux of the matter, of course, lies in speedy implementation.