"The capital flow situation is not alarming because we are using it very well. There are countries that have imposed capital flow controls. I do not see any such need right now. Economy has been able to take it well," said Kaushik Basu, chief economic adviser at the Indian Finance Ministry.

According to a recent Morgan Stantley report, capital flows to India will almost double to $33.9 billion in the current financial year from an estimated $17.3 billion in 2008-09 on the back of an improved sentiment for the country's economic growth.

"With current account deficit at 2.9 per cent of the gross domestic product (GDP) in the fiscal 2009-10 and capital flows at 4.1 percent of the GDP, the excessive inflows have largely been balancing the high deficit and have, therefore, not been a matter of concern," said a mid-year review of the Indian economy tabled by the country's Finance Minister Pranab Mukherjee in Parliament on Tuesday.

Large capital inflows leading to rupee appreciation can hit India's exports which have seen a smart recovery in the first six months of the current fiscal, the Finance Ministry analysis said.

"The surge in the capital inflows in recent years raises the question whether the inflows are in access of domestic absorptive capacity, which could lead to overheating of the economy," said the Indian government's first-half economic report card.

Overheating implies rise in prices due to excessive demand. While it said that so far, inflows had not caused a sharp appreciation of the rupee, it also warned of the adverse impact it could have on exports.

"The main implication of large capital flows to India has been buoyancy in stock markets and appreciation of the rupee vis-a-vis the US dollar...the appreciating rupee can have adverse impact on the earnings of exporters and makes exports less competitive," said the report.

However, the Indian government tried to mellow down fears over rupee increase, saying that the country's central bank - Reserve Bank of India -- will step in if required.

"If appreciation becomes very sharp, then the RBI's policy has been to intervene, not by putting restriction and measure of that kind, but through operation in the market," said Basu.

According to the Indian Finance Ministry analysis, the country's exports during April-September aggregated to $103.65 billion, registering a year-on-year growth of 28 percent. However, cumulative value of imports during the same period was $166.48 billion, showing an annual rise of 29.9 percent.

While the trade deficit for the first half of 2010-11 was $62.83 billion, up 33.2 percent from the corresponding period last year, total capital inflows were of the order of $37.4 billion in the first half of the current fiscal. These inflows stood at $53.6 billion in the previous fiscal.

However, it also highlighted positive side to the phenomenon. The appreciating rupee "is an anti-inflationary tool as it makes imports of oil, which form 30 percent of India's total import basket, cheaper," said the country's Finance Ministry review.

While total foreign investment inflows into shares this year have been more than $29 billion, the rupee has appreciated by over four percent.