The strong rupee is already hurting India's exporters, with companies cutting jobs and scaling back expansions. A further appreciation may have even worse consequences for sectors like textile, infotech and automobile.

The commerce ministry, which is responsible for exports, is keen that exporters be insulated from the impact of strengthening of the rupee.

Around three months back, the ministry had been assured by monetary authorities that the dollar would not fall below 40, an official said.

The ministry now believes the rupee is headed even further north in the long term - perhaps even 35, a level that it had last witnessed in 1996-97.

"In the long term, we expect an even stronger rupee. We have told exporters to be prepared for Rs 38 a dollar by December this year, and perhaps 35 or even 30 next year ," the official added.

Experts partly concur with the commerce ministry's take on the rupee. Abheek Barua, chief economist, HDFC Bank [Get Quote], said he would baulk at calling the rupee at 35, but agreed it could reach the 38-38.50 levels if inflows remained as strong as they were currently.

Barua added the recent measures to curb inflows would result inflows slowing down and the appreciation of the rupee diminishing by the year-end.

Significantly, the finance ministry has said India's exporters must prepare themselves for a stronger rupee, with Finance Minister P Chidambaram making it clear that the exchange rates were market-determined and would remain that way.