New Delhi, Oct 9 (UNI) The government today said the capital inflows into the country is at three per cent of GDP but is able to absorb only 1.1 per cent of this into productive investment with the rest of the inflows going into the reserves of the Reserve Bank of India (RBI).

Buoyed by a positive climate, progressive liberalisation of the policy regime and simplification of procedure, forex reserves of India has been rising rapidly and Finance Secretary D Subba Rao today said it was becoming a challenge to find means to invest the foriegn capital influx.

''The question now is not on how you attract more foreign capital, but the challenge is how you make pruductive use of the foriegn capital that is already coming in,'' Mr Rao said.

India's foreign exchange reserves rose by a record 11.9 billion dollars during the week ended September 28 to top 248 billion dollars as foreign portfolio investors poured money into stocks in the second-fastest growing economy in the world.

Last week's inflows reportedly one of the highest ever and had the effect of strengthening the rupee, which has gained over 10 per cent against the dollar since April this year.

However, Mr Rao brushed aside any concern on the rising value of the rupee as he said the sustained heavy capital inflows was not a self defeating process to arrest the value of rupee ''but a challenge for RBI.'' We are trying to manage the challenge, he added.

UNI