MUMBAI: The Reserve Bank of India (RBI) Committee, headed by S. S. Tarapore, on Fuller Capital Account Convertibility has recommended that the scheme should be implemented in a five-year period in three phases and at the end of the five-year period ending in 2010-11, "there would be a comprehensive review to chalk out the future plan of action".

The committee, whose report was submitted to the RBI on July 31 and which was made public on Friday, recommended that the annual limit of remittance by individuals to open foreign currency accounts overseas be raised to $50,000 in phase one from the current level of $25,000 and further raised to $100,000 in phase two and $200,000 in phase three. Difficulties in operating this scheme should be reviewed, it observed. Since this facility straddles the current and capital accounts, the Committee recommended that "where current account transactions are restricted, that is, gifts, donations and travel, these should be raised to an overall ceiling of $25,000 without any sub-limit".

"All individual non-residents should be allowed to invest in the Indian stock market through SEBI registered entities including mutual funds and portfolio management Schemes who will be responsible for meeting Know-Your-Customer norms and the money should come through bank accounts in India". It recommended allowing non-resident corporates also to invest in Indian stock markets in the same manner the RBI allowed non-resident individuals.

The committee suggested that non-residents (other than NRIs) should be allowed access, without tax benefits to deposits schemes like FCNR (B) and NR(E)RA, which are allowed only for NRIs with benefit. It also recommended to the Government to review the present tax (exemption) regulations on these deposits for NRIs.

It suggested review of double taxation treaties which favour some countries as source of investment.

The panel is of the view that foreign institutional investors (FIIs) should be prohibited from investing fresh money raised through Participatory Notes (PNs) and the existing PN-holders may be provided an exit route and phased out completely within one year. Raising concern on this issue, the committee observed, "In the case of PNs, the nature of the beneficial ownership or the identity is not known unlike in the case of FIIs. These PNs are freely transferable and trading of these instruments makes it all the more difficult to know the identity of the owner."

The banks' limits for borrowing overseas should be linked to paid up capital and free reserves, and not to unimpaired Tier I capital, as at present, and raised substantially to 50 per cent in phase one, 75 per cent in phase two and 100 per cent in phase three. "Ultimately, all types of external liabilities of banks should be within an overall limit," it observed.

Recognising that Indian industry is successfully building up its presence abroad, the committee recommended that the limits for corporate investments abroad should be raised in phases from 200 per cent of net worth to 400 per cent.

The overall External Commercial Borrowing (ECB) ceiling as also the ceiling for automatic approval should be gradually raised.

The committee recommended that the limit for mutual funds to invest overseas should be increased from the present level of $2 billion to $3 billion in phase one, to $4 billion in phase two and to $5 billion in phase three and these facilities should be available to SEBI registered portfolio management schemes apart from mutual funds.

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