The Centre has set up a committee to identify sectors where foreign portfolio investment can be excluded from the foreign investment ceiling.

The committee, headed by the government's chief economic adviser Ashok Lahiri, will look at various sectors, including banking, telecommunications and retailing.

The Centre had earlier set former economic adviser Rakesh Mohan on the task. While that committee met a few times, its report was incomplete.

Finance Minister Jaswant Singh has re-constituted the committee under Lahiri now. The other members include joint secretaries in the department of industrial policy and promotion and the ministry of finance (foreign investment).

In the Budget for 2002-03, the government had said it would issue guidelines to allow portfolio investment beyond the caps on foreign direct investment in specific sectors.

It had also allowed foreign portfolio investment in companies beyond 24 per cent of their paid-up capital with the approval of shareholders through a special resolution.

Government officials said while there was a case for excluding portfolio investment from the overall foreign investment cap, domestic companies also needed protection against overseas predators.

"For instance, we cannot let an overseas company acquire a stake in an Indian corporate by picking up the foreign institutions' holding and then launching an open offer," said an official.

The committee would suggest riders to prevent such eventualities, the official added.

The finance ministry blocked a proposal last year by Vysya Bank to raise the foreign institutions' holding beyond the cap on foreign investment.

In private banks, foreign investment is capped at 49 per cent. Guidelines issued by the Reserve Bank of India allowed the foreign investment to go up to 98 per cent, including 49 per cent through portfolio investment.

The finance ministry is also planning to introduce a Bill in the current session of Parliament to increase the foreign investment cap in the insurance sector from 26 per cent to 49 per cent.