Even as record foreign fund flows lifted the rupee to 39.43 against the US dollar today, the highest since 1999, the commerce ministry has started telling exporters to prepare for the rupee rising even further to 38 against the US dollar by December.

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

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

Around three months back, the commerce ministry had been assured by monetary authorities that the US 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 the exporters to be prepared for 38 by December this year and perhaps 35 or even 30," the official added.

Experts only 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 are currently".

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

Significantly, the finance ministry has said that India's export community must prepare itself for a stronger rupee, with P Chidambaram making it clear that the exchange rate is market-determined and will remain that way.

Earlier this September, Chidambaram had said the rupee's real and nominal effective exchange levels were "way beyond comfort levels" at the moment, but "that is something we have to learn to live with".

Since April this year, the rupee has risen over 12 per cent. The latest Reserve Bank of India's [Get Quote] rupee reference rate for the US dollar is 39.38. A number of measures have since been taken to bail out Indian exporters, but they are clamouring for more, a demand the government has indicated may be looked at in the near future.