India raised import taxes on gold and silver on Tuesday as policymakers scrambled to narrow a gaping current account deficit, but concerns about the slowing economy and fears of more capital outflows kept up pressure on the ailing rupee.
The rupee got a small lift after the gold measures were announced in late afternoon, after earlier threatening to test record lows.
Finance Minister Palaniappan Chidambaram unveiled plans on Monday to curb imports and raise capital inflows to relieve the grinding pressure on emerging Asia's worst-performing currency.
(Read more: More drastic steps needed to curb India gold bugs)
But the measures have largely underwhelmed investors due to a lack of specific details.
India's broader aim is to narrow the current account deficit to 3.7 percent of gross domestic product (GDP) in the fiscal year ending in March 2014, down from a record 4.8 percent in the previous fiscal year, Chidambaram told parliament, a goal many analysts said was optimistic.
But market participants fear India's piecemeal approach of raising a couple billion dollars here and a couple of billion there will not be enough to arrest the rupee's decline at a time when the economy is weakening and prospects of foreign outflows grow on the back of a rollback in U.S. stimulus.
(Read more: Relax, India's massive gold imports likely a one-off)
Without a more ambitious plan to tackle the current account deficit, analysts say the Reserve Bank of India (RBI) may need to stick to its gambit of draining cash from the financial system longer than expected, risking further strains on the economy and, in turn, making it harder to attract vital foreign inflows.
"These measures need to be backed by structural reforms. Unless the fundamental woes are addressed, any sustained relief in the rupee will be temporary," said Anubhuti Sahay, economist at Standard Chartered Bank in Mumbai.
The rupee recovered somewhat after the announcement of the gold and silver import tax hikes to trade at 61.12 to the dollar. It earlier fell to as low as 61.66 per dollar, not far from the record low of 61.80 hit on Aug. 6. It has lost more than 10 percent so far this year.
All that glitters
India hiked the import duty on gold to a record 10 percent, the third such increase in eight months, while also raising excise duty on the metal.
(Read more: Is India fighting a losing battle against gold bugs?)
Gold is India's biggest luxury import and was a key contributor to the all-time high in the current account deficit.
The move comes as imports of gold revived to $2.9 billion in July after a series of tax hikes and constraints on supplies had initially appeared to stem demand, confirming the resilience of demand in the world's biggest buyer of bullion.
Analysts also fear that duties on gold may just increase smuggling.