Nov. 23 (Bloomberg) -- India's Finance Minister Palaniappan Chidambaram said the South Asian nation is confident of gaining control over record inflows of capital that have fueled advances in the rupee and the benchmark stock index.

``It's a new situation for us and I am confident that we will gain mastery over capital inflows,'' Chidambaram told a business conference in New Delhi today. ``India has remained largely insulated from the turbulence in the financial markets.''

Overseas investors have bought a record $18 billion in stocks and bonds this year, double their purchases in 2006, attracted by India's record economic growth. The inflows increased after the U.S. Federal Reserve Sept. 18 cut rates to stem subprime mortgage defaults, helping the rupee gain 12 percent since January and pushing the benchmark stock index above 20,000 points for the first time.

India's finance ministry had imposed curbs on companies seeking to borrow from overseas in August. The Securities & Exchange Board of India on Oct. 25 tightened rules on overseas investment in shares through so-called participatory notes.

The market regulator said overseas funds will have to register before investing in securities linked to Indian equities or sell their holdings within 18 months. Chidambaram said on Oct. 18 the curbs are aimed at reducing inflows that had stoked the rupee's advance this year.

``We cannot afford shocks, we cannot afford turbulence in our markets,'' Chidambaram said today. ``Therefore, we have been cautious and calibrated in opening our financial markets.''

Curbing Inflation

India's central bank last month unexpectedly ordered lenders to set aside more reserves for the fourth time this year to prevent ``unacceptably high'' inflows of foreign cash from reigniting inflation. The Reserve Bank of India raised the ratio of deposits that lenders must put aside by half a point to 7.5 percent, up from 5.25 percent at the start of the year.

The central bank is yet to take a clear view on capital flows, Deputy Governor Rakesh Mohan said yesterday.

The government expects the Indian economy to expand ``close to 9 percent'' this year, although rising prices are a cause for concern, Chidambaram said at the conference.

``Oil, commodity and food prices are driving inflation,'' the minister said. ``Oil prices have risen to new highs and they will rise further. It is important to factor in these price increases and adjust our policies so that inflation doesn't go out of hand.''

Indian Prime Minister Manmohan Singh said Nov. 17 his government has controlled inflation amid a record surge in oil prices. The government hasn't allowed Indian refiners to increase prices this year on concern it will accelerate inflation.

Fuel Subsidy

India's government hasn't raised gasoline and diesel rates amid a 60 percent increase in crude oil prices to curb inflation and protect the poor who make up half the country's 1.1 billion people. Asia's third-largest economy depends on imports to meet three-fourths of its annual energy requirements.

Singh's Indian National Congress party-led federal ruling coalition has cut taxes while the central bank raised interest rates and reduced the cash in the banking system to curb inflation, which rose to a two-year high in January.

India's inflation has slowed since then, holding near a five-year low as the government subsidizes fuel to protect consumers from record crude oil prices before elections in the states of Gujarat and Himachal Pradesh next month.

Wholesale prices rose 3.01 percent in the week ended Nov. 10 from a year earlier, compared with a 3.11 percent gain in the previous week, the Ministry of Commerce and Industry said today. Analysts had forecast inflation at 3.20 percent.

The Reserve Bank of India has described the current inflation rate as ``suppressed'' because it does not reflect the rise in oil price to records.

India, Asia's third-largest economy, has grown an average 8.6 percent since 2004, the fastest pace since independence in 1947. Among the major world economies, it's the second-fastest pace after China.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

Last Updated: November 23, 2007 02:02 EST