This paper proposes a control scheme to reduce the circulating current in parallel inverters of autonomous microgrid. The proposed scheme is based on adaptive modulation index, which is generated by a controller operating along with conventional voltage-current-droop controller. Three-phase inverters are connected in parallel for increased power capability and reliability. These paralleled inverters share common load in a desired ratio with the help of droop controller. One of the operational challenges in paralleled inverter system is that of circulating current which causes power loss, decreased efficiency, current distortion and reduced life. In order to reduce the circulating current, the reference modulation index is adjusted adaptively through an independent controller. The original modulation index is revised by making proportional adjustment toward voltage and current drop errors. This way, the proposed controller works independently and does not affect the performance of conventional droop controller. The design procedure for the proposed controller based on system modeling is also presented in the paper. The effectiveness of proposed controller is verified through simulation and experimental validation. A comparison of performance with a recently published PID-based coordinated controller is also presented. The results establish the superiority of proposed scheme for balanced, unbalanced and nonlinear load conditions.