The committee, headed by former RBI deputy governor S S Tarapore, submitted its report on Friday evening recommending that fuller capital account convertibility be implemented in three phases and suggesting a comprehensive review at the end of the five-year period ending in 2010-11 to chalk out plan of action.

The report of the committee said the annual limit of outward remittance by individuals to open foreign currency accounts overseas would be raised to 50,000 dollars in the first phase from the existing level of 25,000 dollars and further be enhanced to 100,000 dollars in phase two and to 200,000 dollars in the phase three.

To make the Indian corporate sector compete globally on an equal footing, the report said foreign borrowing ceiling be gradually raised in phases from 200 percent of net worth to 400 percent of net worth.

For mutual funds, it suggests abolition of stipulations on individuals on individual fund limits and the proportion in relation to net value and raising the overall ceiling from the present level of two billion dollars to three billion dollars in phase one, to four billion dollars in second phase and to five billion dollars in the last phase, the committee said.

The committee proposes foreign companies and individuals to invest in Indian markets and that non-resident Indian corporates be allowed to invest in Indian stock markets through entities, including mutual funds and portfolio schemes, registered with Security Exchange Board of India (SEBI).

The panel also recommends that non-resident Indians be allowed to invest without limits in Indian stock markets but the money should be routed through bank accounts in India.

At present, a non-resident Indian is allowed to own only up to five percent of the paid-up capital of a company. No Indian company is allowed to sell more than ten percent of such capital to non-resident Indians as a whole.

The committee suggests that non-residents other than non-resident Indians be allowed access without tax benefits to deposits schemes like FCNR (B) and NR (E) RA which are allowed only for non- resident Indians with tax benefit. It also recommends review of the present tax (exemption) regulations on these deposits for non-resident Indians.

To prevent slush money from entering Indian capital market, the committee has proposed a complete ban on fresh inflow of Participatory Notes (PN) issued by foreign institutional investors to their clients against deposits. As a result, Indian regulator never gets to know the identity of the original investors.

It suggested a review of double taxation avoidance treaties, which favour some countries as sources of investments.

In another key recommendation, the committee has proposed that the government cut its stake in State Bank of India, India's largest commercial bank, and all other public sector banks to 33 percent. At present, the law restricts minimum government holding in these banks to 51 percent.

The Tarapore committee was set up a couple of months ago following the advice of Prime Minister Manmohan Singh, considered the initiator of Indian economic reforms in 1991, who had called a re-look at capital account convertibility.

This was the second report of Tarapore on capital account convertibility after 1997. China too had announced a shift towards easing capital controls in 1997 but had to shelve it in the wake of the Asian currency crisis in 1997, which had hit many economies of South East Asia.