"We will recommend to the cabinet that the foreign investment limit be raised to 74 percent from 49 percent," Shourie told reporters.

However, he said the ceiling will be raised only to allow in foreign institutional investors, while the limit for foreign companies taking a stake in a local operation will remain at 49 percent.

At the same time, the minister announced that local operators had accepted compensation of 200 million dollars to drop a suit against the government over changes made in October to introduce a single telecoms license, doing away with separate ones for landline and mobile services.

Existing private mobile phone operators, many of which have foreign partners, opposed the changes as they made it much easier for newcomers to enter India's rapidly growing mobile market.

The companies charged that millions of dollars in investment had gone to waste by letting new players offering cheap services walk in after paying only a nominal sum.

India's telephone density is among the lowest in the world with only three fixed-line phones per 100 people, compared with the global average of 14.5.

However, India has one of the fastest growing mobile phone sectors and is forecast to have 100 million mobile users by 2007.

The Bombay Stock Exchange's 30-share index surged 1.39 percent on news of the reforms, dealers said.

P.K. Sandill, president of India's Telecom Industry and Services Association, said the sector's growth will soar with the resolution of the legal tangle and hike in foreign investment limits.

"On this very issue of the dispute over the unified licence all development had stalled because most of the investors were not sure where they would stand if they put in their money," he said.

"They now know that there is a level playing field and turf encroachment is not an issue," he added.

Sandill said he expected the number of mobile phones sold by private operators each year, now at five million a year, to jump by at least another 30 percent after Wednesday's announcement.

He added that the rise in the foreign investment limit will provide cash to India's four big private mobile operators to acquire smaller firms and consolidate operations.

Industry officials said that the mobile tariff charges, which are among the lowest in the world, would come down further with the proposed policy changes.

Some of the older operators that were complaining about the cheaper limited mobile services launched by new players could themselves get into the game to ensure that they remained competitive.

India's largest private sector group Reliance created an upheaval in the industry when it launched a low-cost mobile service in December 2002 offering subscribers a limited geographic range.

However, India's telecoms regulator in October had recommended a fine be imposed on the group for violating the terms of its fixed-line licence by offering mobile services.

India had 14 private cellular operators when it opened up its nascent mobile telephony sector in mid-1990s.

Since then four have grown to become the dominant players: the Bharti group, which has a tie up with Singapore Telecom; Essar, which has a deal with Hong Kong-based Hutchison, the Sterling group and India's revered Tata group.